Preamble

The House met at half-past Two o'clock

PRAYERS

[Mr. SPEAKER in the Chair]

PRIVATE BUSINESS

GREATER LONDON COUNCIL (GENERAL POWERS) (No. 2) BILL

Bill read the Third time and passed.

KESTEVEN COUNTY COUNCIL BILL

BRITISH TRANSPORT DOCKS BILL

Bills, as amended, considered; to be read the Third time.

AUSTRALIAN, MERCANTILE, LAND AND FINANCE COMPANY LIMITED BILL [Lords]

JOHN HOLLIS TRUST FOR EMPLOYEES (AMENDMENT) BILL [Lords]

Bills read a Second time and committed.

CHICHESTER HARBOUR CONSERVANCY [MONEY]

Queen's Recommendation having been signified—

Resolved,
That, for the purposes of any Act of the present Session to incorporate the Chichester Harbour Conservancy and transfer thereto certain harbour undertakings, it is expedient to authorise any such increase in the sums payable out of money provided by Parliament under the Countryside Act, 1968, as results from any provision of the said Act of the present Session applying section 33 or 34 of the said Act of 1968 to expenditure incurred by that Conservancy so as to enable grants under that section to be made to the Conservancy as if it were a local authority within the meaning of that section.—[Mr. Patrick Jenkin.]

Oral Answers to Questions — NATIONAL FINANCE

National Savings Certificates

Mr. Fry: asked the Chancellor of the Exchequer if he will now increase the upper limit on the holdings of National Savings Certificates by individuals.

Mr. Emery: asked the Chancellor of the Exchequer if he will now issue a National Savings certificate bearing a higher rate of interest.

Mr. Jessel: asked the Chancellor of the Exchequer if he will now issue a National Savings certificate bearing a rate of interest comparable with that available on marketable Government debt.

The Minister of State, Treasury (Mr. Terence Higgins): I cannot anticipate my right hon. Friend's Budget Statement.

Mr. Fry: My hon. Friend will appreciate that that was the kind of answer which I thought he would probably give. Should my right hon. Friend include this point in his Budget Statement later today, will he bear in mind the necessity to introduce the change which I have suggested?

Mr. Higgins: I am sure that my right hon. Friend will bear in mind what my hon. Friend has said.

Mr. Emery: While not asking my hon. Friend to take anything away from the Chancellor's Statement, may I ask him whether he would accept that the present rates for National Savings Certificates, with interest rates as high as they are, do not encourage this type of saving?

Mr. Higgins: My impression is that the decimal issue which came on sale on 5th October, 1970, and has an annual yield of nearly 5¾ per cent., has been a considerable success.

Medium-Term Overseas Debt

Mr. Fry: asked the Chancellor of the Exchequer how much medium-term official overseas debt was outstanding on 18th


June, 1970, or on the nearest convenient date; and by how much it has been reduced since then.

The Chief Secretary to the Treasury (Mr. Maurice Macmillan): I define the medium-term debt as being that to the I.M.F.; this stood at £992 million at end-June, 1970, and since then has been reduced by £24 million. A repayment schedule for the greater part of the outstanding amount has recently been announced.

Mr. Fry: Would my hon. Friend accept my congratulations on the reduction of this medium-term debt? I hope that the years of Conservative Government will soon see the level falling to nil, as it was before the Labour Party came into office.

Mr. Macmillan: If my hon. Friend will consult Table 17 of Cmnd. 4631, he will see what happened to debt in the five years 1965–69, and subsequently in 1970.

Mr. Barnett: If the hon. Gentleman is accepting credit from his hon. Friend for the reduction of debt, is he prepared to accept the blame for the increase in inflation, unemployment and lack of growth?

Mr. Macmillan: During the five years 1965–69 the dollar portfolio of £500 million was sold, £100 million of that went to the reserves, and £400 million plus another £1,800 million was required to pay off the indebtedness of those five years.

Taxation (Low Incomes)

Mr. Molloy: asked the Chancellor of the Exchequer whether he will review taxation policy to reduce income tax for the low-paid worker, pensioners, and the fixed-income groups in the lower-income brackets; and if he will make a statement.

The Financial Secretary to the Treasury (Mr. Patrick Jenkin): The hon. Member will not expect me to anticipate my right hon. Friend's Budget Statement.

Mr. Molloy: Would the hon. Gentleman not agree that in these days of constantly rising prices, Government pledges notwithstanding, it would be quite wrong to give relief to the well-off rather than the old-age pensioners and those enumerated in my Question? Is the hon.

Gentleman aware that if this is not done it will be a reversal of the compassionate society which the Labour Government initiated?

Mr. Jenkin: I can tell the hon. Member that no groups stand to benefit more from the Government's successful fight against inflation than those listed in his Question.

Newcastle (Government Bookshop)

Mr. Milne: asked the Chancellor of the Exchequer if he will give the retail sales of Her Majesty's Stationery Office's publications made in Newcastle-upon-Tyne during each of the last five years; and if he will now consider opening a retail branch of Her Majesty's Stationery Office Government bookshop in Newcastle similar to Birmingham, Bristol, Manchester and other centres.

Mr. Patrick Jenkin: As the answer contains a number of figures, I will with permission circulate them in the OFFICIAL REPORT. The question of establishing a Government bookshop in Newcastle has been examined several times, but the volume of business in the area is insufficient to enable an official bookshop to pay its way.

Mr. Milne: Is the hon. Gentleman aware that while the agencies providing Government publications in Newcastle are doing a good job they are inadequate to meet the needs of a growing area? If the Government's regional policy means anything at all, should not Newcastle be brought into line with the rest of the country? Will he do something about it?

Mr. Jenkin: I am grateful for the tribute the hon. Member has paid to those bookshops which handle Government publications. I must tell the hon. Member that the volume of turnover in the City of Newcastle was less than half the figure that we would require as being the minimum to support an independent Government bookshop.

Mr. MacArthur: Will my hon. Friend say whether it is true that sales of the White Paper "In Place of Strife" were among the 10 best sellers of Her Majesty's Stationery Office? Will he further consider making a full refund to those who paid for that publication under the deluded impression that the then Government would do something about it and fulfil their pledges?

Mr. Jenkin: I can confirm that "In Place of Strife" came ninth in the top ten for 1969–70. I can only tell my hon. Friend that I think the electorate satisfactorily repaid themselves on 18th June.

Following is the information:

Sales to trade and retail account holding customers in Newcastle-upon-Tyne during each of the last five years were:



£


1966–67
18,800


1967–68
19,700


1968–69
21,500


1969–70
29,200


1970–71(estimated)
23,500

European Economic Community

Mr. Deakins: asked the Chancellor of the Exchequer what is his estimate of the balance of payments surplus in 1973, on the assumption that the United Kingdom enters the European Economic Community and makes a 3 per cent. initial contribution to the Community budget.

Mr. Maurice Macmillan: Our intention is to maintain a surplus which is adequate to our needs. The cost of a 3 per cent. contribution would be about £30 million net.

Mr. Deakins: Can the hon. Gentleman say, if the balance of payments situation deteriorates, whether the economy in 1973 will be able to sustain an initial contribution higher than the 3 per cent. offered, thinking in terms of the 7 per cent. or 8 per cent. which seems to be the inevitable compromise in the negotiations?

Mr. Macmillan: The hon. Gentleman is making rather too much of this. The rate of export credit is going at something like £300 million, not £30 million, a year. There are many factors in our balance of payments which have to be taken into account, and this contribution is only one of them.

Mr. Normanton: asked the Chancellor of the Exchequer what steps he is taking by way of preparation for Great Britain to join the European Economic Community, to ensure that taxation policies are brought into line with those currently, or prospectively, operating in the Community.

Mr. Higgins: Due weight is being given, in the Government's review of

taxation, to progress made within the Community towards harmonising the structure of taxation.

Mr. Normanton: I thank my hon. Friend for his reply, and I appreciate the reasons for its brevity. May I ask him to urge upon his right hon. Friend the vital need to continue to draft fiscal measures which will serve as an incentive to those who respond to this type of policy, and be a sharp spur to those who react better to such measures?

Mr. Higgins: I am not sure that I can rise to the heights of my hon. Friend's argument. I will certainly bear in mind what he says.

Estate Duty (Agricultural Land)

Mr. Deakins: asked the Chancellor of the Exchequer if he will consider removing the partial exemption from death duty of agricultural land.

Mr. Patrick Jenkin: I have noted the hon. Member's suggestion.

Mr. Deakins: Is the hon. Gentleman proposing to take any action to close this major loophole in death duty avoidance? Further, is he aware that it has contributed to the high price of farmland, which has been one of the means of preventing young people who want to become farmers owning their own farms?

Mr. Jenkin: I obviously cannot anticipate my right hon. Friend's Budget Statement but I rather feel that the hon. Member is exaggerating this. Out of a total estate duty yield last year of £365 million some £10·7 million was attributable to the relief of farmland.

Mr. Peter Mills: Will my hon. Friend bear in mind that high taxation on land means fragmentation of holdings, which is a most serious thing in agriculture? Will he take no notice of hon. Members opposite?

Mr. Jenkin: I will certainly take a great deal of notice of what my hon. Friend says.

Corporation Tax (Football Clubs)

Mr. William Price: asked the Chancellor of the Exchequer whether he will exempt football clubs from corporation


tax in respect of money spent on ground improvements.

Mr. Patrick Jenkin: No, Sir.

Mr. William Price: asked the Chancellor of the Exchequer whether he will withdraw the exemption of football clubs from corporation tax in respect of money spent on acquiring players.

Mr. Patrick Jenkin: No, Sir.

Mr. Price: Is it not strange that a club spending £150,000 on a footballer is exempt from taxation when a club spending a similar sum of money on ground improvements is subject to corporation tax? Will the Minister seriously consider, in the interests of ground safety, relieving the tax burden on ground improvement and, if necessary, imposing it upon the transfer of players?

Mr. Jenkin: I am sure the House would be impatient if I delivered the hon. Member a lecture upon the difference between capital and revenue—

Hon. Members: Cheap.

Mr. Jenkin: —but I appreciate that there is a serious intention behind the hon. Member's question. I would only ask him to believe that it raises very much wider implications than football clubs.

Mr. Merlyn Rees: Does the hon. Member realise that on either side of the House we will not be lectured by anyone? Would he put his mind instead to the real problem of safety at football grounds that has been put to me by Leeds United Football Club? This is a problem exercising the minds of many hon. Members.

Mr. Jenkin: I did say that I recognised there was a serious point behind the hon. Member's question. There is a good deal of expenditure on safety which certainly qualifies for deduction as revenue expenditure. If there is any particular case which Leeds United or any other club would wish to have examined I would be happy to look at it.

Unit Trusts

Mr. Milne: asked the Chancellor of the Exchequer if he will institute an inquiry into the rôle of unit trust com-

panies in the investment economy of the nation: and if he will make a statement.

Mr. Higgins: No, Sir. The rôle of unit trusts is well understood, and I do not think an inquiry would serve any useful purpose.

Mr. Milne: Is the hon. Gentleman aware that that is a disappointing reply, particularly in view of the examination of Investors Overseas Services at the weekend and because unit trusts play a large part in our economy? Is is aware that if funds are directed into the wrong channels the imbalance of the economy can be increased? Will he make a complete examination to assure investors in unit trusts that those sums are properly directed in a period of economic decline?

Mr. Higgins: I do not necessarily accept the situation which the hon. Gentleman describes as regards imbalance but I will none the less look into the point he raises.

Mr. Bruce-Gardyne: Would my hon. Friend not agree that one of the most useful and effective ways in which my right hon. Friend could stimulate industrial investment this afternoon would be by getting rid of the last Government's double liability for capital gains tax on unit trusts and investment trusts?

Mr. Higgins: I regret that again I cannot anticipate what my right hon. Friend might say.

Personal Income and Savings

Mr. Adley: asked the Chancellor of the Exchequer what was the change in the proportion of personal disposable income taken by personal savings between the first half of 1959 and the second half of 1964, and between the second half of 1964 and the first half of 1970; and what is the figure for the most recent convenient period of six months.

Mr. Higgins: Between the first half of 1959 and the second half of 1964 personal saving as a percentage of personal disposable income (seasonally adjusted) changed from 5·0 to 8·5 per cent.; between the second half of 1964 and the first half of 1970 it changed from 8·5 to 8·4 per cent. and in the second half of 1970 it was 8·6 per cent.

Mr. Adley: While thanking my hon. Friend for those figures, may I ask him to confirm that there is a direct relationship between savings and taxation; in other words, more savings means less taxation? Would he do his best to persuade his right hon. Friend to continue to encourage savings by small savers?

Mr. Higgins: I can most certainly accept that there is a very clear relationship between savings and taxation because, naturally, the voluntary postponement of consumption provides the funds for investment and gives us more scope for reducing taxation.

Mr. Barnett: Have the Government made an estimate of the effect on small savers of the Government's action in respect of the Mersey Docks and Harbour Board and workers' shareholdings in Rolls-Royce?

Mr. Higgins: No. Those are two quite separate questions.

Value Added Tax

Mr. Skinner: asked the Chancellor of the Exchequer at what level he estimates that value added tax needs to be introduced to offset the abolition of selective employment tax.

Mr. Maurice Macmillan: This would depend on the coverage of the value added tax.

Mr. Skinner: Although there is a great deal of speculation on what his right hon. Friend intends to do about selective employment tax, will the Minister remind him to confirm that the introduction of value added tax, which hits hardest at old-age pensioners and people on low incomes, will not be introduced at any level?

Mr. Macmillan: Value added tax is being studied on its merits in connection with the context of our review of the whole taxation system, and an announcement will be made in due course when we are ready.

Mr. Burden: Would my right hon. Friend not agree that value added tax is nothing to do with S.E.T. but would replace purchase tax?

Mr. Macmillan: That is a more correct balance, if such a balance can be

drawn. A value added tax is an indirect tax on goods and services, and in that sense it is nearer to purchase tax than to selective employment tax.

Mr. Bob Brown: If and when the Government's Election pledge to abolish S.E.T. is carried out, will the Government ensure that the very many price increases imposed under the guise of S.E.T. will be refunded to the consumer?

Mr. Macmillan: It is fair to say that many prices are higher than they would otherwise have been because of selective employment tax. On the other hand, many retailers and others have kept down prices to the best of their ability, and their relief from selective employment tax, whenever it may happen to come, must be considered a factor in their liquidity and other aspects of their business. This is not a matter which we can discuss now.

Mr. Marten: In the meantime, if we are to have a value added tax, would the Government assure us that it will not be placed on food?

Mr. Macmillan: This assurance has already been given, both by myself and by others in the House. I refer my hon. Friend to a Written Answer which I gave on the 15th December last.

Estate Duty Office (Staff)

Mr. Dalyell: asked the Chancellor of the Exchequer what proposals he has for the improvement of prospects of highly qualified personnel in the Estate Duty Office.

Mr. Patrick Jenkin: The pay of technical staff in the two Estate Duty Offices is under review: Proposals which, if accepted, would improve the position of younger officers on completion of their legal training have recently been put to the staff association concerned.

Mr. Dalyell: Will consideration be given to the growing contrast between the financial reward of senior inspectors of taxes and the financial reward to similarly qualified people in private firms, who often spend their time advising, frankly, on tax evasion?

Mr. Jenkin: This is a matter which those responsible keep constantly under review.

Money Supply

Mr. Bruce-Gardyne: asked the Chancellor of the Exchequer what was the increase in the money supply in the first three quarters of the current financial year.

Mr. Maurice Macmillan: In the first three quarters of the current financial year, the money supply, seasonally adjusted, increased by £646 million, £252 million, and £516 million respectively. These figures were published in the March issue of the Bank of England Quarterly Bulletin.

Mr. Bruce-Gardyne: Can my hon. Friend confirm reports that the total increase for the entire financial year is likely to have run out at about 12 per cent., which would make it the second largest increase in the money supply in recent years? If this is the case, does that correspond to my right hon. Friend's definition of a money supply policy which should be less than positive?

Mr. Macmillan: Broadly speaking, the money supply has been contained on the lines of my right hon. Friend's policies. But it would be best if my hon. Friend waited a little while, when he will doubtless hear other details of this, amongst other things.

Mr. Cant: Would the hon. Gentleman confirm the figure given by his hon. Friend? In view of the difference between D.C.E. and money stock, is it not obvious that a great deal of this extra money is as a consequence of the inflow of hot money from abroad, and would he advise the Chancellor to reduce Bank Rate today, rather than next Thursday morning?

Mr. Macmillan: We are watching very carefully the flow of funds from abroad, which, as the hon. Gentleman suggests, can present a problem. But I cannot give any details such as those which he asked for.

Mr. Emery: asked the Chancellor of the Exchequer what was the percentage increase in the money supply between 31st March, 1970, and 18th June, 1970, and the latest available date, respectively, expressed at an annual rate; and what

is the comparable figure for the period between 18th June, 1970, and the latest available date.

Mr. Maurice Macmillan: Reliable figures are not available for all the periods asked for by my hon. Friend. Figures for the money supply (M3) in the first three quarters of the present financial year were published in the March issue of the Bank of England Quarterly Bulletin. The seasonally adjusted percentage increases in these quarters were 4 per cent., 1½ per cent. and 3 per cent. respectively.

Mr. Emery: Do not those figures show that the Government have been pursuing an active policy to control the money supply, and that the situation is very much better than the comparable figures showed in the last year of the Labour Government?

Mr. Macmillan: Yes, Sir; the most recent estimates indicate that the situation is coming under control, and it looks as though we shall be very close to the target by the end of the year.

National Wealth Register

Mr. Meacher: asked the Chancellor of the Exchequer if he will take steps to set up a national wealth register.

Mr. Higgins: No, Sir.

Mr. Meacher: I thank the Minister for that full and daunting answer. Will he accept that the balance of tax between capital and income is at present extremely grossly ill-weighted against the latter? In view of the evasion of capital tax, which is known to be running into several million pounds a year, and the avoidance of capital tax, which is known to be running into several hundreds of millions of pounds a year, will the Minister accept that the only equitable means of taxing wealth is through the establishment of a proper wealth register in this country at last?

Mr. Higgins: I would not accept that for one moment. I do not believe that a national wealth register would be reasonable. It would be costly to run and would serve little useful purpose.

Mr. William Clark: Would my hon. Friend confirm that the Government's


policy is to build up national wealth rather than penalise it?

Mr. Higgins: I entirely agree with what my hon. Friend has said.

Income and Capital (Distribution)

Mr. Meacher: asked the Chancellor of the Exchequer what estimate he makes of the total redistribution of income and capital from the poorest quartile of the population to the richest quartile which has already been brought about by Government action or to which the Government are publicly committed.

Mr. Higgins: Information on which to base satisfactory estimates is not available.

Mr. Meacher: Does the Minister nevertheless not accept that the sixpence off income tax, the 2½ per cent. cut in corporation tax already announced and the reintroduction of the non-aggregate rule for surtax, to which the Government are already committed, will collectively be giving over £500 million a year to the most highly paid and investing class, and that this is being paid for almost entirely by the poor and the lowest-paid workers?

Mr. Higgins: I would not accept that. It is important to consider all the measures which the Government have taken, and not merely to make selection from them.

Mr. William Clark: Would my hon. Friend not agree that it ill becomes the Opposition to criticise reductions in taxes when every Budget which they introduced increased taxation?

Mr. Higgins: I have always been very struck by the peculiar way in which hon. Gentlemen opposite react on the lines which my hon. Friend has suggested.

Mr. Spearing: The hon. Gentleman wishes to refute the allegation of my hon. Friend. If he cannot give the figures, on what does he base his refutation?

Mr. Higgins: I did not say that. I said that it was not a reasonable approach to select one or two particular measures and to draw out the conclusion from them.

Mr. Ian Lloyd: Since the hon. Gentleman himself falls within the upper quartile of the population, and since it lies wholly within his personal power to do so, has he advised my hon. Friend what personal steps he has taken to avoid what he regards as the more regressive aspects of the Government's policy?

Mr. Higgins: That lies outside my sphere of responsibility.

Married Women

Mr. Farr: asked the Chancellor of the Exchequer if, in view of the urgent need to encourage highly qualified married women, such as physiotherapists, to return to work on a part-time and a full-time basis, he will seek to amend the taxation law to facilitate this, bearing in mind their frequent need to employ full-time daily helps.

Mr. Patrick Jenkin: I must ask my hon. Friend to await my right hon. Friend's Budget Statement.

Mr. Farr: Is it not wrong that highly-skilled women should stay idly at home, and does not the whole nation lose in the long run?

Mr. Jenkin: Many of the highly skilled women to whom my hon. Friend refers would hardly describe themselves as staying idly at home, but I take my hon. Friend's point.

Mrs. Lena Jeger: Whatever the Chancellor has to say this afternoon, will the Government bear in mind the income tax position of the employed full-time daily help who, together with her husband, may be trying to bring up a family on a far lower income than that of her employer?

Mr. Jenkin: It is right to point out to the hon. Lady that the tax treatment of married women below the surtax level is a good deal more favourable than if the husband and wife were single.

Income Tax Reduction

Mr. Dixon: asked the Chancellor of the Exchequer what estimate he has made of the number of families who will benefit from the income tax reduction announced in October, 1970.

Mr. Patrick Jenkin: About 6¾ million families with children.

Mr. Dixon: Would the Minister agree that the figures which he has just given demonstrate that already there are large numbers of people in this country, from the top to the bottom, who have every reason to be thankful for the advent of a Conservative Government?

Mr. Jenkin: The reduction in the standard rate of taxation reduced taxation for every taxpayer in the country.

Mr. Fernyhough: What amount of reduction in tax will it mean to the 6 million to whom the hon. Gentleman has referred? Will it be, for instance, 1s. or 2s.?

Mr. Jenkin: It would depend upon their total income and their total tax liability.

Mr. Barnett: Can the hon. Gentleman say how many people will benefit after taking into account the Government's policy on increased charges for food, increased council house rents, and increased rates?

Mr. Jenkin: Not without notice.

P.A.Y.E. Computer Centres

Mr. Nicholas Edwards: asked the Chancellor of the Exchequer why the last of the nine Pay As You Earn computer centres is not expected to come into action until 1979 when the decision to computerise Pay As You Earn was made in 1963.

Mr. Patrick Jenkin: Because this was thought at the time to be a realistic timetable having regard to the size and complexity of the automation programme. Work on the programme has now largely been suspended for the reasons which I gave to the House on 7th December last.

Mr. Edwards: I welcome the present suspension, but would it not be sensible to press on with the simplification and reform of personal taxation before proceeding with these costly and apparently not very efficient computer systems?

Mr. Jenkin: I dispute my hon. Friends' suggestion that the system was not efficient. It was computerising the existing tax system, and it is because we are interested in simplification that we have suspended the programme.

Mr. Douglas: Is the hon. Gentleman satisfied with the progress being made at Centre One at East Kilbride?

Mr. Jenkin: As many hon. Members know, I have given very considerable attention to the difficulties which have over the past months been experienced at East Kilbride. Without giving too great a hostage to fortune, I have gained the impression, as have a number of hon. Members, that the great efforts made by the staff there are now bringing improvements.

Disabled Persons (Clothing Allowance)

Mr. Dormand: asked the Chancellor of the Exchequer whether he has given further consideration to a tax allowance for clothing for disabled persons; and if he will make a statement.

Mr. Higgins: The tax system cannot set out to take account of the specific expenses of particular groups of people, however deserving.

Mr. Dormand: Is the Minister of State aware of the very considerable hardship caused to handicapped people by this iniquitous imposition? Does he not agree that the amount of revenue lost if such a concession were to be granted would be negligible and that the mark of a civilised society is the degree to which the better off can help those who are worse off?

Mr. Higgins: I would not be at all unsympathetic to the hon. Gentleman's approach. I am well aware of the points he has raised. My hon. Friend the Financial Secretary and I have answered a number of questions upon it, but, having studied the matter very closely, we felt bound to come to the conclusion that it would not be right to seek to give help in this way but rather through the normal workings which are the responsibility of my right hon. Friend the Secretary of State for Social Services.

Mr. Molloy: Will the hon. Gentleman agree to the question I asked earlier, that if the disabled, who have more expenses than able-bodied people, do not get some relief, and if rich, well-off, able-bodied people do, this spells a disastrous future for the good name of the country?

Mr. Higgins: We are deeply concerned about the problems of the disabled, but


it is more effective to take action through the workings of the social services than otherwise.

£ Sterling (Purchasing Power)

Mr. Kaufman: asked the Chancellor of the Exchequer what is the purchasing power of the £ sterling now, taking it as 100p on 18th June, 1970.

Mr. Higgins: Taking the value of the £ sterling as 100p in mid-June, 1970, its purchasing power in mid-February, 1971, the latest date for which information is available, is estimated at 94½p. This comparison is based on the movement in the General Index of Retail Prices.

Mr. Kaufman: Without my asking the hon. Gentleman to anticipate his right hon. Friend's Budget Statement, would he nevertheless ask the Chancellor to include in his Budget a declaration making it clear that any tax concessions or social service benefits in the Budget have already lost one-eighteenth of their value as a result of the inflation over which the Tory Government have complacently presided?

Mr. Higgins: I have rarely heard such a silly statement as the statement that we are complacent about this issue. What we are trying to do is to put right the mistakes of the previous Administration.

Sir Harmar Nicholls: Will the Minister bear in mind that, taking into account the dismal, indeed disastrous, inheritance that this Government had, the nation will congratulate the Government on containing it at that figure?

Mr. Higgins: I appreciate what my hon. Friend says. My feeling is that public opinion is very much behind the policy which we are now pursuing of reversing the escalating nature of this trend.

Mr. Swain: Does the hon. Gentleman expect this trend of depreciation to continue? If not, what steps do the Government intend to take to halt it or to reverse the trend?

Mr. Higgins: As I have indicated, we are determined to reverse this trend, and the entire economic policy being pursued by the Government is designed to do precisely that.

Private Forestry

Mr. Hardy: asked the Chancellor of the Exchequer what was the total amount of tax concessions for private afforestation schemes using land of good agricultural condition where no public access or amenity is provided during each of the last three years.

Mr. Patrick Jenkin: No estimates are available.

Mr. Hardy: Will the Financial Secretary urge his right hon. Friend to carry out a very thorough review of the present tax arrangements applying to private forestry? Should not the tax arrangements which apply be those which would encourage conservation and the provision of social amenity.

Mr. Jenkin: I am certain that tax arrangements should also have regard to the desirability that we should become more self-sufficient in timber.

Bank Card (Cheque-Cashing Facilities)

Dr. Gilbert: asked the Chancellor of the Exchequer what estimate he has made of the increase in credit availability that will result from the contemplated introduction by a bank, the name of which has been supplied to him, of £100 cheque-cashing facilities for holders of a particular bank card.

Mr. Higgins: None, Sir.

Dr. Gilbert: Is not this new arrangement just announced by Barclaycard a way for the banks to escape the controls over private lending? Will the Minister of State consider whether to bring these schemes under control or, if not, to scrap the whole system of controls over lending, which is so discriminatory and also riddled with loopholes?

Mr. Higgins: I would not myself go in for commercials. I would merely state that I do not believe that there is any such effect, because the individual credit ceilings are not being automatically increased and because this lending has to be accommodated within the banks' restricted lending limits.

Selective Employment Tax

Mr. Pavitt: asked the Chancellor of the Exchequer what is his estimate of the


effect on the cost of living index of reducing selective employment tax by 50 per cent.

Mr. Higgins: Such a reduction would exert a downward influence on the index. The precise effects would depend on a number of variables.

Mr. Pavitt: Whilst not wishing to anticipate the abolition of this tax in a few hours' time according to the election pledges, may I ask the Minister of State to bear in mind that a good deal of this has been absorbed by the retail services and that any institution of value-added tax in its place would hit the consumer far more badly than this one does?

Mr. Higgins: I am well aware of the hon. Gentleman's concern about the effect on the retail trade. What I find remarkable is the sudden, new-found enthusiasm for the abolition of the selective employment tax which is discernible on the other side of the House.

National Savings Bank (½p and 6d.)

Mr. Geoffrey Finsberg: asked the Chancellor of the Exchequer if he is aware that the National Savings Bank is refusing to accept or issue a combination of a single ½p and a single 6d., even though they total a round unit; and if he will direct it to discontinue this practice.

Mr. Higgins: National Savings Bank deposits and withdrawals are normally made at post offices, and I understand that the Post Office instruction and general practice is to treat the sixpence as a working coin. If my hon. Friend has a particular case in mind, he may like to send details to me or direct to the Post Office.

Mr. Finsberg: I thank my hon. Friend for that reply. Is he aware that the joint stock banks are refusing to follow this practice and then, in the same breath, are hypocritically saying that no one wants the sixpence?

Mr. Higgins: That is a separate question. The general position is that there are adequate supplies of sixpences in the banks and they will provide sixpences on demand.

Mr. Barnett: Will the Minister of State confirm that it is an offence to refuse

legal tender, whether it is a halfpenny or a sixpence?

Mr. Higgins: Clearly, the legal tender provisions also set limits on the circumstances in which these coins may be transmitted.

Sir J. Rodgers: Is my hon. Friend aware that there are many banks in my constituency that refuse to give sixpences even though all the parking meters take the sixpenny coin? Will he do something about it?

Mr. Higgins: That is not my understanding of the position. If my hon. Friend will give me further details I will look into it.

Government Departments (Purchases)

Mr. Normanton: asked the Chancellor of the Exchequer by what criteria Government purchasing Departments allocate purchases as between supplies from United Kingdom sources and those from overseas.

Mr. Patrick Jenkin: It is the policy of the Government that Department's primary aim is to secure the best value for money.

Mr. Normanton: I thank my hon. Friend for that reply, but may I draw his attention to the answer given to Question No. 40 on Wednesday, 3rd March, and ask him to recommend to the Lord President of the Council that he should order the purchase of curtains and furnishing fabrics for the Palace of Westminster which are spun, woven and finished in Lancashire?

Mr. Jenkin: Those are lofty sentiments, and I am sure that my right hon. Friend has noted what my hon. Friend says.

T.U.C. (Economic Policy Document)

Mr. Eadie: asked the Chancellor of the Exchequer what reply he has sent to the Trade Union Congress after his study of its economic policy document.

Mr. Maurice Macmillan: None, Sir. In their discussion of the economic situation with the T.U.C. Economic Committee on 11th March, Ministers stressed the need to reduce the current level of cost inflation.

Mr. Eadie: Will the Chief Secretary say how much additional employment would result from 5 per cent. economic growth, and whether he agrees with the projections made by the T.U.C. in its document?

Mr. Macmillan: The Government's view regarding the T.U.C. document was made clear in the statement issued after the meeting. Their view as to what may happen in the future will be set out by my right hon. Friend this afternoon.

National Savings

Mr. Adley: asked the Chancellor of the Exchequer what has been the net inflow of funds to the National Savings movement since 18th June, 1970; and how this compares with the comparable figure a year earlier.

Mr. Higgins: Figures for the middle of a month are not available. In the eight months from July, 1970, to February, 1971, the provisional figures show that the amount remaining invested in National Savings increased by £206 million. In the comparable period a year earlier, the amount remaining invested decreased by £45 million.

Mr. Adley: I thank my hon. Friend for those figures. Do they not indicate that, whatever politicians or journalists may say, the silent majority of the people of this country have confidence in this Government?

Mr. Higgins: That is entirely so, and it is important that we should do everything possible to create a situation in which savings are encouraged.

Mr. Wellbeloved: But does not the hon. Gentleman realise that the figures announced earlier, showing that the pound is now worth only 94½p, mean that the Government have already knocked a "bob" off every pound invested in National Savings?

Mr. Higgins: It is true that inflation does have an effect on the value of savings, and it is for that reason, among others, that we are determined to control inflation. Increased savings are a major weapon against inflation.

Tax Revenue

Mr. Dixon: asked the Chancellor of the Exchequer what was the total tax

revenue in 1969–70 compared with 1964–65, both in absolute terms and in terms of 1964–65 prices.

Mr. Maurice Macmillan: Total tax revenue in 1964–65 was £7,431 million. The gross tax yield in 1969–70 was £14,733 million, but after adjustment for S.E.T. refunds, and so forth, a comparable total is £12,643 million, which is estimated to amount to about £10,600 million in terms of 1964–65 prices.

Mr. Dixon: Do not those figures clearly demonstrate to the British people that they will always be more taxed under Labour than under the Conservatives, and that, whatever the Chancellor's announcements may be later this afternoon, the British people will know that had there been a Labour Government in power taxes would have been even higher in 1971?

Mr. Macmillan: They make clear that the comparable figures for 1969–70 and for 1964–65 are as 10 to seven.

Oral Answers to Questions — CONFEDERATION OF BRITISH INDUSTRY AND TRADES UNION CONGRESS (TALKS)

Mr. John D. Grant: asked the Prime Minister what consultations he has had this month with the Confederation of British Industry and the Trades Union Congress about the state of the economy; and if he will make a statement.

Dr. Gilbert: asked the Prime Minister if he will make a statement on his official talks with the Trades Union Congress leaders on Thursday, 11th March, 1971.

Mr. John Fraser: asked the Prime Minister if he will now make a statement about his official meeting with the Trades Union Congress on 11th March to discuss economic policy.

Mr. James Hamilton: asked the Prime Minister whether he will report on the conclusions reached at his official meeting with the Confederation of British Industry on 8th March; and if he will make a statement.

The Prime Minister (Mr. Edward Heath): I would refer the hon. Gentleman to the Answer which I gave to a


similar Question from the hon. Member for West Ham, North (Mr. Arthur Lewis) on 16th March.—[Vol. 813, c. 297–8.]

Mr. Grant: That reply to my hon. Friend—whatever it was—was totally unsatisfactory. In view of the Prime Minister's current complaints about excessive wage claims, did he remind the T.U.C., and will he now remind the House, of the number of occasions during his pre-election campaign when he publicly appealed for a de-escalation of wage demands?

The Prime Minister: As I told the hon. Gentleman's hon. Friend the Member for West Ham, North that I was glad to have the opportunity of discussing the economic situation with the C.B.I. and the T.U.C. and looked forward to a continuing exchange of views, I fail to see why that answer was unsatisfactory. As regards the de-escalation of wage claims, throughout the period leading up to the General Election, and throughout the campaign, I pointed to the need to get on top of inflation in exactly this way.

Dr. Gilbert: Did the Prime Minister discuss with the T.U.C. how big a contribution to the reduction of inflation would be made by the abolition of the first three days of social security benefits announced yesterday? Does the right hon. Gentleman accept that this vindictive little piece of meanness is totally irrelevant to the country's economic problems and will serve merely to infuriate the ordinary working people of this country?

The Prime Minister: We did not discuss that particular point, but I think it discourteous of the hon. Gentleman to use those adjectives against his right hon. Friends on the Opposition Front Bench who proposed the measure earlier.

Mr. Fraser: Will the Prime Minister now answer the Question and tell the truth to the House? What did he say about the de-escalation of wage claims when the doctors' pay claim was published, for example? Did he say anything on that occasion? Does he not remember that for years in the House he opposed a prices and incomes policy and gave an indication to the country that it would be abolished if he took office? Does he not realise that the responsibility lies with him?

The Prime Minister: What we said was that if the then Government wished to de-escalate the award made to the doctors, they should be honest enough to tell the country the seriousness of the economic situation; but that, with the single exception of the right hon. Member for Coventry, East (Mr. Crossman), they failed to do.

Mr. Hamilton: Did not the right hon. Gentleman give the two parties concerned some assurance that there would be a reflation of the economy before his Government defeated the record previously reached by a Conservative Government in 1963 when we had in Scotland 136,000 unemployed? Is he not now prepared to give an assurance that the Government will do something for Scotland and the development areas?

The Prime Minister: I gave an assurance to both the C.B.I. and the T.U.C. that we should fully consider each of the proposals which they put before me and my colleagues, and I then said that we should have the opportunity of discussing my right hon. Friend's Budget at the next meeting of the N.E.D.C., which will be a week tomorrow.

Oral Answers to Questions — MINISTRY OF DEFENCE (MINISTERS)

Mr. Kaufman: asked the Prime Minister whether he will increase the number of Ministers in the Ministry of Defence.

The Prime Minister: No, Sir.

Mr. Kaufman: That scarcely surprises me. Does the Prime Minister recall his unequivocal pledge on "Panorama" on 2nd February last year that any Government led by him would continue the Labour Government's policy of spending more on education than on defence, and will he say which Minister in the Ministry of Defence is in charge of implementing that pledge in view of the fact, substantiated in the Daily Mail, that in the coming year his Government will be spending £300 million more on defence than on education?

The Prime Minister: I am prepared to look at those figures, but the latest information I had was that the Ministry of


Defence is the third spending Department, under Health and Social Security and Education.

Oral Answers to Questions — MINISTER OF AGRICULTURE (SPEECH)

Mr. Sillars: asked the Prime Minister if the public speech by the Minister of Agriculture, Fisheries and Food on 6th March at Southwold on industrial relations represents the policy of Her Majesty's Government.

The Prime Minister: Yes, Sir.

Mr. Sillars: Does the Prime Minister recall a passage in that speech which demanded action to stop Britain sliding into mediocrity and despair? Does he agree that the Minister of Agriculture, Fisheries and Food could make the best contribution to the achievement of the noble aim by resigning?

The Prime Minister: That is a singularly pointless supplementary question. My right hon. Friend's speech dealt with several major issues, particularly the questions of wage-cost inflation and industrial relations. What he said on both of those was absolutely right, and it was a splendid speech.

Mr. Jeffrey Archer: Will my right hon. Friend place a copy of Lord George-Brown's memoirs in the Library, with a special interleaved edition of the memoirs of the Leader of the Opposition, in order that historians may choose what was the policy of the last Government?

Mr. Faulds: Mr. Charity at 8 per cent.

The Prime Minister: I am not sure what an hon. Gentleman opposite is shouting about. If he could restrain himself a little longer he would hear the answer.
I regret that I would not be able to interleave the book until the Leader of the Opposition has published his own memoirs. In any case, the right hon. Gentleman might like to consider presenting Lord George-Brown's book to the Library, provided he could get it autographed.

Oral Answers to Questions — WINDWARD ISLANDS

Mr. John Fraser: asked the Prime Minister if he will seek to pay an official visit to the Windward Islands.

The Prime Minister: I have at present no plans to do so.

Mr. Fraser: In the absence of a visit, could the Prime Minister try to give an assurance to the Associated States that their treatment as traditional suppliers of bananas to this country will for the long term be no less favourable than, say, the treatment given by France to her ex-colonies, particularly in view of Britain's possible entry to the Common Market?

The Prime Minister: I think the hon. Gentleman's question refers to the Common Market position if we were to become a member. The matter is being dealt with in the negotiations. My right hon. and learned Friend the Chancellor of the Duchy of Lancaster discussed it very fully with the Caribbean countries during his recent tour. As to the present position, for which we are responsible, we have given the assurance to the Windwards and the other countries concerned that their interests are being observed just as much as those of Jamaica. I must say in fairness to the Prime Minister of Jamaica that in the conversations I had with him in Singapore he always insisted that the Windwards and the other islands should have exactly the same assurances as he was seeking for Jamaica.

Oral Answers to Questions — GERMANY (VISIT)

Mr. Marten: asked the Prime Minister if he will make a statement on his official visit to Germany.

The Prime Minister: As the House knows, the situation in Northern Ireland made it necessary to postpone this visit. I now plan to visit Berlin on 4th April and to have talks with Herr Brandt in Bonn on 5th and 6th April.

Mr. Marten: When my right hon. Friend sees Herr Brandt, could he emphasise that the extra cost to Britain if we should join the Common Market of the recently increased food price was estimated in Brussels to be about £100 million, and that this is a burden that we cannot afford?

The Prime Minister: I am not prepared at this stage to give any judgment on the last part of my hon. Friend's question. But there is no doubt that in Bonn I shall have the opportunity to discuss all these questions with the German Chancellor.

Mr. Lawson: When the Prime Minister goes to Germany, will he show a bit more courtesy than when he came to Scotland, when a substantial number of those on the Scottish Economic Council walked out from his meeting in anger?

The Prime Minister: There is absolutely no truth in that suggestion. I was invited to have lunch with the Scottish Economic Council. I did so, and we had a discussion afterwards in which the Chairman, my right hon. Friend the Secretary of State for Scotland, invited all to express their views. They did so freely, and it was extremely valuable. At the end I answered many of the points. With great respect, I know of no one walking out from that lunch.

Hon. Members: Withdraw!

Mr. Lawson: I have taken my information from a report that appeared in the Scotsman last Saturday. I will accept that it is inaccurate if the Scotsman reporter says that it is inaccurate.

The Prime Minister: I must leave it to the hon. Gentleman whether he prefers to accept a Press report—and no representative of the Scotsman or any member of the Press was present at the lunch—or the reports of myself and others who were present. The position is as I have stated it, that no one left that lunch. The only person who left slightly before the end was the Press Officer from No. 10, because he wished to get into contact with people outside.

Hon. Members: Withdraw!

Oral Answers to Questions — GOVERNMENT DEPARTMENTS (REORGANISATION)

Mr. Carter: asked the Prime Minister if he is satisfied with the way in which the restructuring of Government Departments have been implemented; and if he will make a statement.

The Prime Minister: Yes, Sir. I am satisfied that good progress has been made within the broad framework set out in the White Paper on the Reorganisation of Central Government published last October.

Mr. Carter: Is the Prime Minister aware that the complete mess the Government have so far made of the British aircraft industry is a direct result of the

Government's decision to set up a separate Ministry of Aviation Supply, and that neither in America nor Britain will confidence in this Government's handling of aviation be re-established until a very close look is taken once again at the establishment of that Ministry?

The Prime Minister: The hon. Gentleman's opening remarks come ill from a supporter of a former Government that destroyed the TSR 2. The organisation of Departments concerned with aviation was set out very clearly in the White Paper published last October. I announced that a review was being carried out of the Ministry of Aviation Supply. That review has been completed, and I shall announce the decisions at the appropriate time.

Mr. Loughlin: Will the Prime Minister take it from me that there is no earthly reason why he should make any statement of any kind, because no one believes a word he says?

Oral Answers to Questions — DEPARTMENT OF EMPLOYMENT (MINISTERS)

Mr. Carter: asked the Prime Minister if he will reduce the number of Ministers at the Department of Employment.

The Prime Minister: No, Sir.

Mr. Carter: Is the Prime Minister aware that people in the country think that something should be done either to increase or to decrease the number of Ministers at the Department of Employment, to reduce at once the very high level of unemployment in Britain?

The Prime Minister: The problem of unemployment is linked to a very large number of policies. What the hon. Gentle-does not like is the fact that my right hon. Friend the Secretary of State for Employment and his colleagues have carried through the House the Industrial Relations Bill.

Mr. Lipton: Is the Prime Minister aware that we still think that he should go to the Windward Islands?

The Prime Minister: I am grateful for the hon. Gentleman's good wishes, but I will refrain from indicating to him where I think he might go.

Mrs. Renée Short: Is the Prime Minister aware that what we on these benches do not like, and what all my West Midlands colleagues in the House do not like—I know that I speak for them—is that since his Government came to power we have the highest level of unemployment in the West Midlands since the end of the war? Is he aware that male unemployment in the West Midlands is 4·2 per cent.? Is it not time he got his Ministers in the Department of Employment, which should be called the Department of Unemployment, on to the job and doing something about it?

The Prime Minister: If the hon. Lady dislikes the situation as much as that, I hope that she will vocally, in public and private, support the policies for dealing with wage-cost inflation.

Oral Answers to Questions — CABINET (DEFENCE MINISTERS)

Mr. Dalyell: asked the Prime Minister if he will appoint a second Minister in the Ministry of Defence to his Cabinet.

The Prime Minister: No, Sir.

Mr. Dalyell: Is not one of the three or four key members of the Cabinet, who chooses to make a highly provocative speech introducing the Defence Estimates, to be exposed not to the cosiness of the House of Lords but, if necessary, to the ribaldry and hostility of the House of Commons?

The Prime Minister: This is a very old argument, which the hon. Gentleman seems quite incapable of dropping. My right hon. and noble Friend the Secretary of State for Defence, who is in the House of Lords, holds that office because I consider him to be a most suitable person as Secretary of State for Defence. As we have a bi-cameral system I believe that it is right to work that system by having senior members of the Government in both Houses.

Orders of the Day — WAYS AND MEANS

BUDGET STATEMENT

Mr. Speaker: Before I call the Chancellor of the Exchequer to make his Budget Statement, it may be for the convenience of right hon. and hon. Members if I remind them that at the end of his speech, as in the last three years, copies of the Budget Resolutions will not be handed round in the Chamber but will be available in the Vote Office.

INTRODUCTION

3.30 p.m.

The Chancellor of the Exchequer (Mr. Anthony Barber): The first Budget of a new Parliament should be an occasion not only for fixing the rates of taxation for the coming year. It also provides the opportunity to take stock of the economic progress of our nation over past years and to set the new direction for the years ahead. For almost a quarter of the Members of the new House of Commons, this will be the first Budget debate in which they have participated. And recalling the first Budget Statement that I endured as a new Member, it seemed to me that it might be helpful if, at the outset, I were to give some indication of the course I shall follow this afternoon in what must, inevitably, be a rather long statement.
I shall begin with a review of recent economic trends and of the main economic problems which confront us. Next will come a consideration of the economic prospects for the future, and my general assessment as to what the management of the economy requires at the present time. I shall then outline my proposals, beginning with monetary policy and various other measures and a number of changes in taxation. Finally, I shall put forward certain far-reaching proposals for reform.
It will be agreed throughout the House that for many years, under one Government and another, the economic performance of our country has been poor. Over these years we have become accustomed


to unfavourable comparisons with other industrial countries—slow growth, recurring balance of payments weakness, faster-than-average inflation, a low rate of investment, a falling share in world exports, and increasingly bad industrial relations. These are problems not for government alone but for the whole nation. What is needed is a new realism and a new determination: a new awareness of where the ruts we have been following will lead us and a new national effort to change the direction.
If we are realistic we should recognise that, unless there is a change in the trend—a change not only compared with the last five or six years, but with the trend over the last two decades and more—the prospect is that by 1980 our standard of living in this country will have fallen considerably behind that of most of the countries of Western Europe. Before too long, I hope that we shall know the outcome of our application to join the E.E.C. I have never doubted that, given fair terms, this historic venture would bring us great economic benefits in the longer term. But, whether we go in or whether we stay out, it remains essential to improve Britain's economic performance.
I would not pretend that our deep-seated problems can be overcome quickly, or that one Budget can transform the situation. But Budgets, as we all know only too well, are concerned with taxation; and I believe that one of the most important factors affecting the economic climate in this country is the system of taxation, and the burden of taxation. It would be naive to claim that the tax system is the sole cause of our poor performance as far as growth is concerned, but it is certainly an important factor.
Our system of taxation in Britain has many good points. It is fair as between one taxpayer and another; it is held in good repute and as a result is relatively little abused.
But it also has many defects. It has grown up in a haphazard fashion over the years and it has become ever more complicated. The very multiplicity of its provisions adds to the work not only for the Revenue Departments but also

for taxpayers and their advisers. I should know because for five years I practised at the tax Bar, and I was never short of work!
But there is a more serious aspect of our particular system of taxation. Too often it stultifies enterprise. Too often it discourages the pursuit of profit. Too often it penalises savings, on which the nation's wealth and the growth of our economy so largely depend. Moreover, the difficulty of understanding it adds to the feeling of the oppressive and ever-growing burden of taxation.
And so, over these past eight months, much of my time has been spent, together with my Treasury colleagues and the Revenue Departments, in a comprehensive review of our taxation system. It is no longer good enough merely to tinker with the existing system. What is needed is a plan for radical reform over the next few years. And these must be our aims. First, to reduce the present excessive burden of taxation. Second, to simplify the system, to reduce the number of taxes and to make them more intelligible and easier to work. Third, to encourage initiative, enterprise and effort. Fourth, to encourage people to save more by reducing the present fiscal penalties on savings. And this is the year we must start.

RECENT ECONOMIC DEVELOPMENTS

Inflation

But before coming to my plans for taxation reform I must turn to the more immediate economic problems which beset our nation. Two problems, above all, command attention at the present time, inflation and unemployment: a new and, in many ways, a baffling combination of evils.

This Government inherited a most serious problem of cost inflation. Throughout the whole of the post-war period we in the United Kingdom, in common with almost all other western industrialised countries, have had the experience of incomes rising faster than national productivity and we have, therefore, suffered from some degree of price inflation for over 20 years. But whereas the average rate of rise in money earnings in the decade 1955–65 was under


6 per cent. per annum, and under 6½ per cent. in the period 1965–68, there was a sharp change of trend towards the end of 1969, and by the end of last year average earnings were 14 per cent. above the level of a year earlier. At the same time retail prices had risen by 8 per cent. over the level at the end of the previous year.

Cost inflation is a canker which is eating away at our whole economic and social health. It is causing an arbitrary and inequitable redistribution of income from those who can least afford it to those in strong bargaining positions. At the same time it is sapping our economic strength, because by squeezing profit margins it undermines the confidence of businessmen and causes them to cut back on investment. It erodes our competitive position in foreign markets and here at home too. It weakens employment prospects, not only because labour becomes uneconomically expensive but because our export and import-saving industries lose out to foreign competition. These are the stark realities of the situation.

But it lies within our own power, as a nation, to deal with inflation and, if we do so, the prospects are certainly good. If we can get the rate of increase of money earnings down to something much nearer the rate of increase of national productivity, there is every reason to believe that we shall break out into a new period of faster growth, higher investment, rising living standards and a renewed confidence in our future.

Throughout these past months my colleagues and I have recognised that the first priority must be to defeat cost inflation. Our policy has been to ensure a progressive and substantial reduction in the level of pay settlements so as to ensure steadier prices. A policy of de-escalation is a hard and difficult course for any Government to follow and success is not to be had overnight. But the policy is succeeding. We still have a long way to go, but the upward trend in the level of settlements has been checked, and it is clear from informed opinion in industry that the climate is now quite different and that the pressure on costs through rising wage settlements is less than it was some months ago.

Output and employment

I now turn to developments in the level of activity and employment. In the first half of 1970 economic activity was no higher than in the second half of 1969. Over the 12-month period, from the middle of 1969 to the middle of 1970, industrial production was almost flat. In the second half of last year, output picked up, though this was due in part to an unusually high rate of stock building which has probably not been maintained. The rate of growth of the national product between the first and second halves of the year was at an annual rate of about 3½ per cent., but it is almost certain that this has not been maintained in the early months of this year.

The upward trend of unemployment continued throughout last year and into the early months of this year. This can partly be explained by the relatively slow growth of output over the period, but it also reflects, I have no doubt, the increasing pressure which has been put on employers by rapidly rising wage costs, and which has forced them to economise and so to cut down their labour forces.

The pattern of expansion during 1970 was not ideal. In particular, there was a flattening out in the trend of private industrial investment and a further fall in the share of company profits in the total of domestic incomes. It is a striking fact that the share of company profits has fallen from 14½ per cent. in 1964 to about 10 per cent. in 1970. This is no doubt one important reason why industrial investment, on which our future prosperity depends, has been slowing down. Another feature of developments during 1970 was that the volume of imports rose fast in relation to total demand while the volume of exports rose much less; this of course tended to limit the growth of domestic output.

Monetary Developments

In the monetary field, the policy I have pursued has been to allow an increase in money and credit sufficient to support a rise in the level of economic activity but not so large as to compound the pressures of cost inflation. No estimates


are yet available for the full financial year of domestic credit expansion or money supply; but figures for the first three quarters, which have already been published, show that the money supply increased at an average rate of about 3 per cent. a quarter. As the House will know, there have been massive sales of gilt-edged stock by the authorities during the last quarter. Despite this, the final figures will undoubtedly show that the pace of monetary expansion over the year as a whole was substantially faster than was foreseen last April.

So far as bank advances and the gilt-edged market are concerned, our operations have been notably successful. The restricted lending of the banks has been held within the limits set in the last Budget. It will be recalled that the clearing banks had almost reached their limit shortly after the Government took office. Despite this, their restricted lending at mid-March was about 1 per cent. below the limits set a year ago, though the shortfall reflects some delays in tax payments as a result of the postal strike.

In the gilt-edged market there has been a remarkable turn-round in recent months, and this has enabled us to sell an unprecedentedly large amount of stock. The result is that we have more than reversed the substantial official purchases of stock after last April's Budget and the exceptional redemption of Savings Bonds last September. It is clear that we shall end the year as substantial net sellers of stock. This is a considerable achievement in a year which included the stock redemption which I have mentioned.

External Developments

I now come to the balance of payments. Visible trade was roughly in balance in 1970, and invisibles again earned us a good surplus, bigger than in 1969. As the House already knows, we ended the year with a record surplus of £630 million on current account. But the House should also know this. If one examines the figures for last year more closely, the trends of volume and value of visible exports and imports make it clear why there is no room for complacency as far as the current account is concerned. I will explain why. In 1970 the value of our exports rose by 12

per cent.—hence the record surplus. But the volume rose by less than 4 per cent. By contrast, the volume of our imports rose by over 6 per cent. So the House will see that last year, in volume terms, our imports rose nearly twice as fast as our exports. The significance of these figures is obvious.

Nevertheless, the strong current account surplus in 1970 enabled additions to be made to the nation's overseas assets and also made it possible to reduce official liabilities. Taking account also of capital transactions of all kinds, the total currency flow in 1970, that is, net receipts of foreign exchange, was favourable by nearly £1,300 million, getting on for twice as much as in 1969.

We shall not have full figures for the first quarter of 1971 for some time yet, but there has been a large currency inflow during the quarter. In addition, we received £125 million in special drawing rights as our share of the annual distribution on 1st January.

I must now report to the House on the situation concerning our overseas debts. At the end of June, 1970, just after we took office, short and medium-term official debt stood at £1,461 million of which £992 million was to the International Monetary Fund, and £469 million to other monetary authorities. The House will be pleased to know that the whole of this £469 million of non-I.M.F. debt has now been repaid. That leaves the I.M.F. debt which, as I have said, stood at £992 million at the end of June, 1970. It has since been reduced by £24 million as a result of small sterling drawings by other countries, leaving £968 million outstanding.

We were not obliged to start repaying this outstanding debt until next June. I have nevertheless agreed with the Fund a schedule providing for repayments by eight quarterly instalments, beginning this month, March, of the £551 million which is outstanding in respect of the 1968 drawing. And the House will be pleased to know that I have arranged to repay in advance tomorrow the whole of the first four instalments of that schedule, amounting to a total of £285 million.

To sum up, when we took office the outstanding short and medium term debt stood at £1,461 million. Including the repayments I have just announced, we


have made a total repayment of £778 million; and the debt therefore now stands at £683 million. So the debt has been more than halved since we took office. [HON. MEMBERS: "Oh."] The debt now stands at £683 million compared with £71 million in October, 1964. [HON. MEMBERS: "Hear, hear."]

It is right that I should emphasise here that the volume of I.M.F. debt which still remains is considerable. It amounts to a total of £683 million, all of it debt incurred between June, 1968 and March, 1970, comprising the rest of the 1968 drawing and the £417 million drawn under the 1969 stand-by. This remaining debt represents a real burden which we have to discharge. It is bound to be a continuing constraint on our freedom of action.

Government Finance: Provisional Outturn

Before I turn to the prospects for the future, I must refer to the Government's financial accounts. Hon. Members will find these set out in some detail in the Financial Statement and Budget Report, so I will be brief.

The estimates for 1970–71 were for a central Government surplus of £619 million and a public sector surplus of about £250 million. The estimated out-turn figures for 1970–71 show that the central Government is still in surplus to the extent of £51 million, but that the public sector has a deficit of £617 million.

One reason why the central Government surplus was considerably smaller than expected was the fact that receipts from corporation tax were less than forecast, partly because of the 2½ per cent. cut that I announced last autumn. Another factor was that lending to public corporations was greater than expected. Finally, the figures have been considerably affected by a backlog of receipts as a result of the Post Office strike. It is estimated that some £260 million, which would normally have been received in the current year, will not now arrive until 1971–72. The overall figure for the public sector was affected also by an increase in local authority expenditure, the greater part of which was due to pay and price increases.

THE ECONOMIC OUTLOOK

The balance of payments

I turn now to the future, and before I consider the outlook for the domestic economy, I deal briefly with the external prospect.

World trade in manufactures is expected to grow at a fairly rapid rate in the year ahead, so there should be good export opportunities. We can expect another sizeable current account surplus in 1971, but it is not likely to be as high as in 1970. There are two special factors which are bound to increase our import bill. One is the increased cost of oil imports. The Teheran Agreement alone is likely to add some £55–60 million in the current year to our oil imports from those sources which are covered by that agreement. As the House knows, negotiations on oil imports from our other main sources—that is, other than those covered by the Teheran Agreement—have still to be concluded. The other special factor is the exceptionally large tonnage of new shipping due to he imported this year.

The visible trade figures are likely to show a moderate deficit on average over the year. But this need not be a cause for concern so long as net earnings on invisible account continue strong, as they are expected to do.

I am bound to take account, however, of the danger to our competitive position, and so to our surplus on current account, of the rapid rise in costs which we have been and still are experiencing. If our costs and prices go up significantly faster than those of most of our competitors, this must in due course make inroads into our surplus.

It is obviously essential that we should maintain a strong current surplus. It is not enough just to balance the current account. We need a surplus to provide for repayment of the remaining debt to the I.M.F., and also to support certain outflows of capital and investment items which are normal, inevitable, and, provided that we can finance them, beneficial. The big items of this kind are three. First, official long-term capital, which is mainly repayment of long-term debt and development aid. Second, private overseas investment, which is at record levels, although this is by no means


all a demand on the current surplus and is matched to some extent by inward investment. The third is export credit.

Export credit is important particularly for trade in capital goods; but the provision of credit means exporting without an immediate cash return. It is a significant fact that export credit outstanding from this country has recently been increasing by over £300 million net a year. We are also recipients of credit on some imports but this is considerably smaller.

Of course, a considerable proportion of these outflows of capital can quite properly be financed by additions to liabilities, that is, by various forms of overseas borrowing; but the main basis of finance must be the current surplus.

Overseas investment

It is against this background that I have considered the question of exchange control. I do not need to dwell on the value of investment abroad as a means of maintaining our invisible earnings for the future. The purpose of the present exchange control arrangements is to limit the methods of financing available to investors, so as to minimise the cost to the reserves; but this has not prevented a substantial and welcome growth in overseas investment in recent years.

The Treasury will be announcing today certain comparatively minor changes in the exchange control arrangements affecting direct investment in the non-sterling area. They are changes which will facilitate useful investment without significant cost to the reserves. But I cannot at the present time authorise any extensive or general relaxation of exchange control in relation to overseas investment; and I am afraid that, in the present circumstances, I must ask companies and institutions to continue for the time being to observe the voluntary programme of restraint on direct and portfolio investment in the four developed countries of the sterling area. This is not a satisfactory arrangement, but its abolition could involve a large cost, and it would be imprudent to make such a change this year.

The domestic economy

I turn now to the prospects for the domestic economy. I should emphasise

here that the analysis which I am about to make is concerned with our prospects on the basis of no changes in policy and, of course, it is this which leads to my Budget judgment and to any proposals for change.

Economic forecasting, as every Chancellor who has stood at this Despatch Box knows, is a highly uncertain business. But all the indications are—and this view is supported by most expert opinion—that if no changes of policy were made in the Budget there would be a relatively small increase in output in the year ahead. Even taking into account the cut in the standard rate of income tax, which has already been provided for, the conclusion I have reached is that, in the absence of new measures, national output would grow by not much more than 2 per cent. during the coming year, that is, between the first half of 1971 and the first half of 1972.

Of the various elements in demand, the main contributions to expansion are expected to come from exports, public expenditure, private house building and consumers' expenditure. The increase expected in world trade should provide favourable opportunities for an expansion in our exports, provided we remain competitive. Public expenditure on goods and services is likely to rise by about 2 per cent. There should be a sharp increase in private house building, following the welcome recovery in housing starts and building society advances last year. But in absolute terms, the largest expansionary factor is likely to be consumers' expenditure. Here much will depend on personal savings and to what extent firms pass on in prices the increased costs which are already in the pipeline.

These are expansionary elements. It is, however, a matter of considerable concern that, on present indications, private industrial investment might well fall over the year ahead if there were no change in the climate of expectations. And the volume of imports is likely to rise faster than total demand and this will, therefore, tend to limit the growth of activity in the home economy.

As I have said, these forecasts are inevitably subject to much uncertainty. A great deal will depend on our success in moderating the rate of cost inflation.


But, if the forecast which I have outlined is right, it is to be expected that, with no changes in policy—and I stress that—the trend of unemployment would continue to rise fairly strongly. Some recent estimates about the prospects for unemployment next winter are, I think, a good deal too pessimistic, but, nevertheless, a considerable rise in unemployment would be the most likely trend if no changes in policy were made in this Budget.

It will be clear from everything I have said that the economic problems which we face at present, and the problems which I have had to consider in arriving at my Budget judgment, are in many respects paradoxical and uniquely difficult. We have high and rising unemployment combined with rapid cost inflation. We have poor prospects for investment and a likelihood of relatively slow expansion of output in the immediate future; and at the same time a balance of payments situation which, although strong now, could easily deteriorate.

The first essential is that there should be no let-up in the fight against cost inflation. I have already said a good deal about this basic problem, and I would only add this. The Budget by itself cannot provide the answer to the problem of cost inflation. Nothing that has happened over these past few months has weakened my conviction that the only way in which we can deal with cost inflation is by means of a progressive and substantial de-escalation of pay settlements—[An HON. MEMBER: "Rubbish."] and this is the policy which we intend to pursue and to pursue with determination.

As far as fiscal and monetary policies are concerned, the first requirement is that they should not create any danger that demand inflation will be added to the present inflation stemming from rapidly rising costs. But the forecast which I have outlined—the pre-Budget forecast—suggests that this is not the main danger at present. It is much more probable that, in the absence of any change in policy, the pressure of demand would fall, and I do not believe that the fight against inflation would be aided at present by any further lowering of the pressure of demand. Despite the seriousness of the inflationary dangers which

confront us, it would, in my view, be wrong to introduce a Budget which envisaged that the degree of slack in the economy should increase further. On the contrary, I believe that the fight against inflation itself requires that a greater confidence in the future progress of the economy should be created. And I believe that, unless this is done, there is a danger that investment will fall off to a degree that would damage the long-term growth and competitiveness of the economy.

The Budget Judgment

These considerations lead me to the conclusion that the Budget should provide some addition to demand. This leaves two questions to be answered—the magnitude of the addition which is required and the type of measures which would be most appropriate in the present circumstances.

The first question requires a difficult exercise of judgment. I have never made any pretensions to fine tuning, but my judgment is that the broad aim should be an addition to demand adequate to raise the rate of expansion of output to the rate of growth of productive potential, which is estimated to be about 3 per cent. The measures I shall be proposing are intended to increase demand in the economy over the year ahead by the amount needed to achieve that result.

If, after the measures I am about to announce have been allowed a reasonable time to have their effect, a further stimulus is needed, the usual instruments are always available. Here I should mention that I propose to extend for a further year the power to vary revenue duties and purchase tax by means of the regulator.

The need for this degree of addition to demand this year provides the opportunity to do certain things which are in themselves highly desirable. I think that the whole House will agree that much of the scope for tax relief should be used to assist the fight against inflation and to help some of those who are worst hit by it. At the same time, my aim is that this Budget should not only maintain an adequate rate of expansion of output in the year ahead but that it should also make some contribution to our capacity to grow in the longer term.


It will do so, I believe, by re-establishing confidence and creating the conditions in which industry can make firm plans for a rising level of investment. With these aims in mind, I propose to use much of the scope for tax remission which exists this year to make a start on the more fundamental reforms of the structure of taxation which we shall carry out.

Before I come to my major proposals for taxation, however, I must deal with monetary policy in the year ahead and with a variety of other measures, both in the field of taxation and outside it.

MONETARY POLICY 1971–72

Objectives

I think it is now well understood that, important as monetary policy is as a means of influencing demand generally, it has no special magic for dealing with cost inflation, and it would be inconsistent with my Budget judgment to restrict the growth of money supply so as to reduce demand below the level needed to achieve a growth of output in line with the growth of productive potential. But, equally, the supply of money must not be so plentiful as to produce an additional boost to demand beyond that intention. Nor must it accommodate any further impetus to the rise in costs and prices.

The techniques of control

I now want for a few minutes to consider the techniques of monetary control, and to put forward certain proposals for consideration. It is recognised in every country that effective control of the monetary system is an indispensable part of economic management. By "effective" I mean that the authorities must be able to bring about any necessary tightening of the system when this is called for. But the techniques used should also be flexible and should allow scope for competition and innovation in the banking system.

The existing arrangements which we took over when we came into office are clearly defective on the score both of flexibility and of scope for competition. Despite the use of special deposits, these

arrangements have continued to rely, more than I believe most of us on both sides consider to be desirable, on quantitative guidelines and on ceilings applied to bank lending. The use of these techniques over a long period is bound to lead to rigidities, and it perpetuates a rationing approach which is inimical to innovation in banking, and which tends to stultify competition. What I hope we can do is to break away from this approach.

I believe it should be possible to achieve more flexible but still effective arrangements basically by operating on the banks' resources rather than by directly guiding their lending. As bank lending to the private sector is only one element, but an important one, for effective management, this means devising a scheme capable of influencing the monetary system as a whole and the interplay between the different sources of credit creation.

A great deal of preparatory work and study has been done during recent months towards a more flexible regime on these lines. These ideas will now be fully explored between the authorities and the banks and finance houses.

If we can achieve a change in the direction I have indicated, it will be a major step forward. Inevitably there are real difficulties in making the transition. These difficulties will not be easy to overcome, especially since it would be wrong to take any undue risk of excessive monetary expansion. The House will realise that I can make no promise about the outcome, because it does not depend on the authorities alone. All concerned have to convince each other that flexibility can be combined with effective control.

Consumer credit

One requirement of a new and more flexible regime is that it should deal comprehensively with the whole of the banking sector—taking account of the wide variety of banking business—and with other relevant credit-giving institutions. It is particularly important that it should operate effectively in relation to finance houses with their central role in the field of consumer credit.

And here I should refer to the valuable report on consumer credit by the


committee under Lord Crowther's chairmanship. The committee recommend that control over consumer credit
should be subject 10 the general methods of quantitative monetary control
and should not be singled out for selective methods of control. It also recommended the abandonment of terms control over hire-purchase contracts. Clearly these two points go together—the general methods of quantitative control and the control of consumer credit.

The present hire-purchase arrangements continue to make an important contribution to demand management, although their use as an economic regulator has been causing increasing concern over the years. But it is also vital for economic management that general methods of control can be developed effectively. This will be an important aspect for the consultations to which I have referred. Meanwhile the present hire-purchase arrangements must remain.

Guidelines for 1971–72

In the same way it will be necessary to maintain guidelines on bank lending while the new ideas I have mentioned are being explored. I am sure that the banks will understand the reasons for this and that we can count on their continued co-operation.

The present is a difficult time for assessing what is required. I do not wish to see companies in the present situation impeded by undue, stringency of working capital. I have therefore reached the conclusion that while the rate of growth of restricted lending must still be limited, the limit need not be so severe as it was under the 5 per cent. guideline announced by the right hon. Gentleman last year. For the time being it would not be inconsistent with our general objectives if this lending were to grow at a rate of about 2½ per cent. a quarter.

We shall, however, have to watch this carefully and it is possible that something less will be more appropriate later in the year. I hope that the banks—and finance houses, to whom this guideline will also apply—will channel this additional credit mainly to companies. The general guidance on the direction of lending still stands; in particular, restraint should continue to be observed in the field of personal lending.

What are the implications for money supply? In the first three quarters of the financial year 1970–71, as I have said, money supply rose on average by about 3 per cent. a quarter. The rise was 4 per cent. in the April-June quarter, about 1½ per cent. in July-September and 3 per cent. in October-December. Given the current growth of incomes, there would be dangers for liquidity and employment if we sought immediately to reduce the growth of money supply to much below 3 per cent. per quarter.

But this does not mean that I intend the growth of money supply simply to accommodate the going rate of inflation. As the rise in costs and prices is moderated, so the aim will be to slow down the growth of the money supply. This will depend on the progress we make in de-escalation. I do not want to prejudge this or appear to set a limit to what can be achieved by laying down now a firm objective for money supply for 1971–72 as a whole. But there is no question of relaxing our grip on the growth of money supply in relation to the growth of expenditure.

I believe that this approach is more appropriate this year than setting a quantified D.C.E. objective for the full year. In any case, D.C.E. is a less relevant indicator when the external position is strong. And I might also add, not by way of reproach or criticism, that on each of the two previous occasions when a D.C.E. objective was stated, the actual result was several hundreds of millions out, first in one direction, and then in the other.

MISCELLANEOUS MEASURES

Social Security Benefits: Uprating

Before I come to the details of my taxation proposals, there is one important announcement I must make concerning direct help to those most hard hit by inflation—the old-age pensioners.

In our election manifesto we promised to review retirement pensions every two years to ensure that they at least maintain their purchasing power.

My right hon. Friend the Secretary of State for Social Services will be making a statement to the House about this and related matters, but we thought that it


would be for the convenience of the House if I were today to outline the Government's proposals.

We intend to increase the standard pension for a single person by £1—from the present rate of £5 a week to £6. The standard rate for a married couple will be increased from £8.10 to £9.70. Other National Insurance benefits and war pensions will be correspondingly improved. The basic scale rates of supplementary benefits will go up by smaller amounts because of the interim uprating in November, 1970, but the increase from November, 1969, will be the same as for pensions. These increases will take effect from 20th September—

Hon. Members: Oh.

Mr. Barber: —the earliest practicable date. The period between the announcement and the implementation of the pension increases is about a month less than it was in 1969.

Mr. Andrew Faulds: With the same inflation?

Mr. Barber: The cost of these improvements in National Insurance benefits is estimated at about £560 million in a full year, and will obviously involve an increase in contributions. On the last occasion when improvements in benefits were announced, in the Budget of 1969, the information concerning contributions was only given later. I think the House will agree that it is best to announce the payments and the benefits at the same time.
We have decided that the fairest way of financing this increase in pensions is by moving towards our long-term objective of fully graduated National Insurance contributions. The ceiling for such contributions will be raised from £30 to £42, and the rate of contributions on earnings between £18 and £30 a week will go up from 3·25 per cent. to 4·35 per cent. a side.
The rate of contribution on the new band of liable earnings, from £30 to £42, will also be 4·35 per cent. The ordinary flat-rate contribution will remain unchanged, although there will of course be increases for the self-employed and the non-employed. The Exchequer will contribute about 18 per cent. of the total contribution income. The pre-Budget forecasts to which I have referred take

into account the increases in both pensions and contributions.

Tax Changes Consequential on Uprating

These increases in pension make it necessary to review the income tax age exemption—the provision which gives specially favourable tax starting points to people of 65 or over with limited incomes. I propose to follow the usual practice by raising these starting points in line with the increases in basic pensions. The single person's age exemption limit will be raised from £475 to £504 for 1971–72 and to £530 for 1972–73. and the married couple's limit from £740 to £786 for 1971–72 and to £825 for 1972–73.

As regards the marginal relief associated with the age exemption, the percentage figure which governs the relief has already been fixed at 47–5 per cent. for 1971–72, but in view of the very substantial increase in the exemption limits for 1972–73, I propose to make the figure 50 per cent. for that year in order to ensure that the marginal relief does not run too far up the scale.

Next, dependent relative allowance. It has long been the rule that the full allowance is given for maintaining a dependent relative who has only the standard National Insurance retirement pension. The dependant's income limit for the full allowance will therefore be raised from the present £260 per annum to £289 for 1971–72 and £312 for 1972–73.

I also propose to make a modest increase from £1,000 to £1,200 in the income limit up to which an elderly married couple can have their investment income treated for tax purposes as if it were earned. The limits for this relief—the age relief, as it is called—have hitherto been the same for single people and married couples, but I think it is reasonable to give a slight preference for the married.

Miscellaneous tax measures

I now come to a variety of important taxation proposals, before I deal with my major reforms.

(a) Taxation of wives' earnings and disaggregation of minors' income

The Finance Bill will contain provisions to implement two particular


undertakings in the Government's election manifesto. The first relates to the case where both husband and wife are earning. It is, as we said, a nonsense, and a substantial disincentive, that above a certain level of earnings a married couple can pay more tax than two single people with the same earnings.

I propose therefore that husband and wife should be able to elect to have their earnings charged to tax as if they belonged to separate individuals, but on condition that the husband receives the single personal allowance instead of the married allowance. For administrative reasons this new provision cannot come into effect until the tax year 1972–73. The full year cost is estimated to be about £12 million.

I also propose to repeal, again with effect from the tax year 1972–73, the previous Government's legislation under which the investment income of young children generally is taxed as if it were the income of their parents. I am convinced that that legislation was misconceived. I propose at the same time to reduce to 18 the age at which a child's income derived from its parents ceases to be treated as the parents' income. This follows the recommendation of the Latey Committee on the Age of Majority.

(b) Pension schemes

Next, occupational pension schemes. The House will remember that last year's Finance Bill contained Clauses dealing with these schemes and that, because of the imminent dissolution of Parliament, they were accepted without much debate.

We gave an undertaking to review these provisions, and this we have done, in consultation with those most concerned with the provision of pension schemes. I recognise the practical difficulties facing the F.S.S.U. (the Federated Superannuation System for Universities) and similar schemes in coming to terms with the new rules and, though I cannot accept their claim to be allowed to remain as they are indefinitely, even as closed schemes, I think that the case has been made out for a fairly long transitional period before existing schemes must conform with the new tax code. I propose accordingly to defer to 1980

the appointed day for universal conformity with the new rules.

An earlier appointed day will however be appropriate in the case of entirely new schemes or schemes which are making substantial changes in their rules and I propose therefore that in those cases conformity with the new rules shall be required where tax approval is sought after 5th April, 1973.

The reduction in the "death in service" benefit proposed by last year's legislation has been much criticised as too severe, and I agree with those criticisms. The maximum lump sum—as distinct from widow's or dependant's pensions—which could be provided on death in service was then fixed at two years' salary. I propose to raise this figure to four years' salary exclusive of any return of contributions. This should give schemes much more flexibility.

I propose also to improve the arrangements under which the self-employed and employees for whom a pension scheme is not available can get tax relief for premiums paid to provide themselves with a retirement annuity. In the first place, I propose to raise the limits on the qualifying premiums. These were fixed as long ago as 1956 at 10 per cent. of relevant earnings up to a maximum of £750 per annum and are now clearly out of date; I propose to raise these limits to 15 per cent. and to £1,500.

Sir Gerald Nabarro: Just what I said last night.

Mr. Barber: That is why I glanced at my hon. Friend.
This will permit substantially better annuities all the way up the earnings scale. These changes will take effect as from the tax year 1971–72.
There is one other change I propose for the same category of people—the self-employed and employees for whom a pension scheme is not available. This will enable part of the annuity to be taken in the form of a tax-free lump sum. This is not permissible at present: but now that lump sums may be allowed in all occupational pension schemes, I do not think it right to maintain this ban. I propose therefore that, for annuities which begin to be payable in 1971–72


and later years, an amount approximating to that allowed in occupational schemes can be taken in the form of a lump sum.

(c) Capital gains tax

I turn now to capital gains tax where I have a number of proposals which will simplify the tax system considerably, produce a really useful saving of work for taxpayers and their advisers as well as for the Inland Revenue, and encourage savings.

First, I propose a change in the arrangements for exempting the small gains of individuals. The present exemption for small gains of £50 or less saves very little work, because in most cases it involves a computation of the annual gains and losses to see whether the exemption applies. I propose instead to adopt the disposal proceeds as the criterion and to give exemption where the total proceeds of disposals in the tax year do not exceed £500. This proposal will take out of liability, at small cost, about a quarter of the total of individuals at present liable to capital gains tax—nearly all of them people of modest means. The new relief will apply for 1970–71 alongside the £50 exemption for that transitional year.

Next, I believe that the time has now come to abolish the distinction between short-term and long-term gains. The short-term tax was fully justified when we introduced it in 1962; but, now that we have a general tax on capital gains, the additional yield from the higher charge on short-term gains, which is only about £11 million, is in my view too small to justify the complexities which result from having two sets of rules. For 197172 and subsequent years all gains will be subject to the long-term capital gains tax whatever the length of the period of ownership, and the short-term tax will be abolished. Gains on gilt-edged securities realised within 12 months will similarly be charged to capital gains tax if they are held for more than 12 months they will of course continue to be exempt.

The third important change which I propose is the abolition of the charge to capital gains tax on death, including the death of a life tenant. To impose this charge on an occasion when the estate, including the accrued gains, is already being charged to estate duty at rates

which rise to 80 per cent. results, in my view, in an altogether excessive burden, and this can cause particular difficulties for family companies. I therefore propose to remove it for deaths after today. The associated 15-year charge on discretionary trusts, which are now within the ambit of estate duty, will also be removed. The cost will be negligible in 1971–72 and the net cost for a full year, after allowing for the additional estate duty, will be about £15 million.

(d) Estate Duty

I have been very anxious to find some way of mitigating the burden of estate duty. It is widely regarded as severe and represents a real disincentive to saving. This is a duty which hon. Members on both sides of the House recognise can cause particular hardship in the case of the smaller estates.

I therefore propose to raise the starting point for liability from the present £10,000 to £12,500. This change will exempt almost a quarter of the total of estates now liable to estate duty. The cost will be £20 million for a full year and £10 million in 1971–72. This proposal will take effect in respect of deaths occurring after today.

I am also very conscious of the difficulties which the burden of estate duty can cause for a continuing family business when the proprietor dies. I am therefore proposing a measure of relief for unincorporated businesses and for certain unquoted shares in a family company by spreading the payment of the duty over an eight-year period. I propose to allow the same spread for estate duty on leasehold property.

(e) Building subcontractors

There has for some time been concern about the extent to which some subcontractors in the building and construction industry, especially those who are commonly known as "labour-only" subcontractors, have been evading the payment of income tax. The Finance Bill will contain measures to end this abuse and my hon. Friend the Financial Secretary will be explaining them later in the debate.

(3) Savings

I come next to savings. The Government are pledged to encourage all forms


of personal saving, and saving at every level of earnings. There has been a welcome rise in savings recently. Personal savings provide the family with independence and security; and they provide the nation with the funds with which either to increase investment or reduce taxation. A wide diffusion of ownership and savings is an essential part of personal freedom.

We have a highly developed and in many ways sophisticated savings market in this country. The saver has a considerable range of media to choose from, and what seems to me to be important is not so much to add to this already wide range but to improve existing media which have proved their worth, and—perhaps more important—to remove obstacles and disincentives, both general and particular, which discourage savings.

I had these considerations very much in mind in deciding on the changes I have already announced in the capital gains tax and in estate duty.

There are many powerful motives for saving, but two stand out. The first is the desire to provide for old age and for dependants. The changes I have already announced in the tax arrangements for pension schemes will help and encourage this.

The second motive for saving is the desire for home ownership. The stamp duty on mortgages is an extra burden on people setting out to buy their own homes. I therefore propose, with effect from 1st August, to abolish the stamp duty on mortgages together with the related duty on deeds of covenant. The cost will be about £3½million in a full year and £2 million in 1971–72.

Improvements in National Savings were made as soon as we took office, and the performance in recent months has been good. In the six months up to the end of February, the amount remaining invested in National Savings increased by over £200 million, compared with an increase of only £4 million in the corresponding period of the previous financial year.

I now propose some further improvements.

First, Premium Bonds. Starting in August, there will be a monthly prize of £50,000, in addition to the existing

weekly prize of £25,000. To make this possible the size of the prize fund will be increased. In addition, the present limit on individual holdings will be increased from £1,250 to £2,000 from 1st April. These changes will make Premium Bonds even more attractive.

Next, Save As You Earn. From September, the upper limit on monthly contributions under S.A.Y.E. contracts will be raised from £10 to £20, and contributors will be allowed to take out more than one contract a year within the new maximum amount. These changes will benefit all the Save As You Earn schemes, and will therefore encourage savings in building societies as well as National Savings.

British Savings Bonds are another way of encouraging stable savings. A new issue of bonds will be on sale on 3rd May, and as an added incentive to savers to hold them to maturity the tax-free bonus payable at the end of five years will be increased from £2 to £3 per cent.

The Decimal Issue of National Savings Certificates announced last July has done well. We shall build on that by increasing the limit on individual holdings from £500 to £1,000 from 1st April.

The success of National Savings depends not only on the Government's decisions, but on the loyalty and enthusiasm of the army of voluntary workers under the leadership of Lord Birsay, the Chairman of the National Savings Committee for Scotland, Sir Robert Bellinger, the Chairman of the National Savings Committee for England and Wales and their colleagues. This voluntary work is of great national importance and I would like to pay my tribute to all those who work for the movement.

The National Savings Movement has developed over a period of 150 years and I believe that the time has come to take a fresh look at the whole system through which the Government offer these services to the small saver. Some of those involved in the National Savings field have made suggestions which raise fundamental questions about the future role of the organisations—the National Savings Movement, the Department for National Savings and the Trustee Savings Banks—and their relationship with the Government and with their competitors. I have


therefore decided to appoint an independent committee to examine these matters and to make recommendations to me. It will have wide terms of reference and I am pleased to announce that Sir Harry Page, the retiring City Treasurer of Manchester, has agreed to serve as Chairman. Copies of the terms of reference are being placed in the Library.

COMPANY TAXATION

The structure of corporation tax

I now come to a consideration of the basic structure of corporate taxation, personal direct taxation and indirect taxation, and I will deal with each in turn.

First, corporation tax. From the moment when the introduction of the corporation tax was announced, we made it clear why we were opposed to the particular form which had been chosen. Nothing that has happened since then has caused us to alter that view, and I therefore intend to reform the structure of the tax.

But there are two reasons why it is not appropriate to legislate this year. First, I want to give adequate time for consideration and consultation, because in this case there is more than one method of achieving what we have in mind. The proposals are therefore being published in a Green Paper which will be available today. The second reason why it is preferable not to legislate this year is that the changes we make in this country should have regard to the developments in company taxation within the E.E.C. But my intention is that, unless something unforeseen occurs, we should legislate next year.

The main reason why we regard it as essential to reform the present structure is that we are, and always have been, opposed to the substantial discrimination which it entails in favour of retained as opposed to distributed profits. This discrimination distorts the working of market forces and so tends towards the misallocation of scarce investment resources.

The present system makes it difficult for companies that need to raise equity capital from the market. And it lessens the pressure of the market and the shareholders on the efficiency of the company and on the profitability of new invest-

ment. But there is another and very important reason why I am convinced that the change must be made. The particular form of corporation tax chosen in 1965 required very considerable anti-avoidance measures in respect of close companies, and this has led to a great deal of complex administration with little advantage to anyone.

We have therefore been considering a number of forms of company taxation which would remove these objections. The conclusion we have reached is that the present system of corporation tax should be replaced by one which would be neutral as between distributed and undistributed profits. On domestic grounds our preference would be to secure this result by a two-rate system of company taxation. Corporation tax would be paid at a lower rate on distributed than on retained profits. When the company paid a dividend it would, just as at present, deduct income tax and pay it over to the Revenue. The rates of tax could be so fixed that the tax burden on distributed profits, taking income tax and corporation tax together, would be at the same level as the corporation tax alone on undistributed profits. Among other advantages, this method would reduce considerably the regulation to which close companies are subject, and it would allow a treatment of overseas income which I believe would be fair and reasonable.

This is not, however, the only way to achieve the objective. For example, there is an alternative system under which all company profits, whether distributed or not, are taxed at the same rate, but part of the corporation tax on the distributed profits is treated as a payment on account of the shareholder's eventual income tax liability on his dividends. This system, normally known as the imputation system, can in substance be very similar to a two-rate system and we should certainly consider adopting it here. Clearly developments in Europe will be a factor affecting our choice.

However, as I have said, our present preference on domestic grounds is for a two-rate system, and for this reason the Green Paper sets out the way in which the proposed corporation tax changes would operate primarily in terms of such a system. But it also describes the main respects in which an imputation


system would differ in its operation. I hope that representatives of industry, commerce and the professions will study both systems and make known their views. I believe that this reform will do much to revive equity investment and with it the health of our economy.

The Rate of Corporation Tax

That, then, is how we propose to reform the structure of corporation tax. But we need not only to reform the structure but also to reduce the burden of the tax. I have already referred to the marked fall of the share of company profits in the total of domestic incomes, and this in turn has contributed to a slow-down of industrial investment. Sustained growth can only be based on an adequate level of profitability not only before tax but after tax as well.

In October we reduced the rate of corporation tax payable for the financial year 1969 by 2½ percentage points to 42½ per cent. I now propose a further cut to 40 per cent. to be operative for the financial year 1970, that is, in respect of the tax generally payable on 1st January, 1972, on profits earned in the twelve months from 1st April, 1970. The cost of this change will be £55 million in 1971–72 and £105 million in a full year.

Close Companies and Capital Allowances

One part of the tax code which has come in for considerable criticism is that which governs close companies. I am very conscious of the burden which some of the close company provisions, particularly those relating to shortfall, now place upon directors and their advisers. I therefore propose to take steps this year to alleviate it in advance of the major reform which I have already announced.

As the law now stands, trading companies do not have to justify the level of distributions out of their trading income if that income is less than £1,500. I propose to raise this limit to £5,000, with marginal relief up to £15,000, and to extend the exemption to investment income provided that it does not exceed 10 per cent. of the trading income or £500, whichever is the less. These changes will simplify substantially the administration of the shortfall provisions

both for the Inland Revenue and for the professional advisers of companies. The important consequence of this change is that it will remove altogether from the scope of the shortfall provisions more than half of the trading companies which at present fall within them. The cost is estimated to be £2 million in the first year and £3 million in a full year.

These proposals are part of what I hope will be a continuing process of simplifying business taxation. I should remind the House that I began this process when I announced last October the new and simpler system of tax allowances for capital expenditure, and on this I can now announce a further small step. The Finance Bill will contain new rules for calculating these allowances which, for the continuing business, will largely dispense with balancing charges and allowances when machinery or plant bought since last October is disposed of.

PERSONAL DIRECT TAXATION

I come now to a major reform in the structure of personal direct taxation. Few people would deny that our existing system is too cumbersome, too complex, and in many respects absurd. We have two taxes on personal income—ordinary income tax and surtax. Each of these is subject to separate and often different rules. They are computed and collected separately and at different times. There is no sense in this division—it is simply an historical anomaly.

And there are other absurdities in the system, too. Many of them arise from the fact that the system of personal taxation is structured in terms of investment income, with a complicated pattern of allowances for earned income, despite the fact that earned income constitutes almost 95 per cent. of the total income brought under charge. This causes considerable misunderstanding of the real value of allowances, of the level of tax thresholds, and of the real marginal rates of tax. Many people think that their marginal rate of tax is much higher than it actually is because they confuse it with the standard rate.

What we need, therefore, is to replace the existing income tax and surtax, as we now know them, with a single graduated personal tax. Hitherto, such a major


upheaval has always been regarded as well nigh impossible.

Nevertheless, I am convinced that, despite the difficulties, nothing but a root and branch reform will meet the need for a more sensible and intelligible system of personal direct taxation.

I propose, therefore, to replace the existing income tax and surtax with a single graduated personal tax with the following four principal features.

First, the existing pattern of personal allowances will be substantially retained although, as I shall explain, the amounts require adjustment to ensure that they will approximately retain their equivalent value.

Second, the tax structure will be founded on a basic rate covering a broad band of income and corresponding to the standard rate less earned income relief.

Third, there will be higher rates above the basic rate applicable to the higher incomes.

Fourth, while it will still be necessary to retain the distinction between earned and investment income, this distinction will be made by way of a surcharge on investment income in place of the present earned income relief. But it will be an essential feature of the new system that this surcharge will only apply above a certain level of investment income, so that the first slice of such income will be taxed at the rate applicable to earned income. I regard the discrimination against investment income in its present form as a serious discouragement to saving and I am sure that this must be changed.

This, then, is the essential structure, and I must now explain how it is to be achieved. The process will involve a good deal of detailed legislation. This will be in this year's Finance Bill. The Inland Revenue will then be able to proceed with all the administrative planning required for this major change. A complete P.A.Y.E. recording will be required and this will be done during 1972–73. The new system will come into full operation from 6th April, 1973. It cannot be done earlier for reasons which I shall make clear in a moment.

The provisions of this year's Finance Bill to give effect to these reforms will inevitably be quite complex; and for the

benefit of the House and of the public and the professions, I am arranging for an explanatory White Paper to be published with the Bill.

It is obviously desirable that the change-over to the new system should be achieved in such a way that the yield of personal direct taxation over the period of change-over can be maintained, or adjusted as the case may be, to meet short-term requirements. For the purposes of this year's Finance Bill provisions, the basic rate under the new structure will be put provisionally at 30 per cent., but of course this will not commit us to that rate in 1973–74. A final decision on that point must be taken in the light of the circumstances at that time in exactly the same way as in any other year.

The Bill will also make provision for the higher rates of tax and the surcharge on investment income. But here again, the actual rates and the starting point for the surcharge, all effective from April 1973, will be fixed in the Budget of that year. Finally, the Bill will fix, provisionally, the personal allowances so that they will approximately retain their equivalent value in the new system. Because the new system will be expressed in terms of earned income, it follows that the amounts of the allowances must be adjusted to take account of the present two-ninths earned income relief. The actual figures will appear in the Finance Bill, but the purpose of these adjustments, as I have made clear, will simply be to ensure that they retain their equivalent values in the new system.

The new system, when it comes into force, will involve substantial changes in administration. From 1973–74 deductions under P.A.Y.E. will extend to the full graduated scale of rates, and these will also be applied to assessments on business profits. Income tax will be deducted from dividends and interest at the basic rate, provisionally fixed at 30 per cent., and the higher rates of tax and any surcharge payable will be assessed separately. Because surtax will cease to apply after the year 1972–73, the work of the Surtax Office will come to an end in due course and the change will therefore lead to a substantial saving in staff.

The change-over will, of course, in no sense involve double taxation but,


because we shall be moving to a new system of current payments at both the basic and the higher rates on the graduated scale, it will mean that in the one year 1973–74 some taxpayers will be paying this tax on their current earnings, and also surtax in respect of their earnings for the previous year. Those affected have more than two and a half years' notice but, even so, I realise that there may he difficulties for some and, to help them further, payment of part of any substantial sums of surtax for 1972–73 on earnings will be allowed to be deferred for one year.

It is desirable not only that we should legislate for the change-over now, but also that we should, where possible, move closer to the sort of pattern which I hope we shall be able to establish in 1973. My decision last October to reduce the standard rate was the start of this process; it brought the standard rate down to 38¾ per cent. and made the effective rate on earned income, after taking account of the two-ninths earned income relief, approximately 30 per cent. I now have two further proposals to make, both of which are highly desirable in themselves and in line with the immediate need, which I have already explained to the House, to give some additional stimulus to the economy this year.

First, I believe it is accepted on all sides of the House that there is an urgent need to take action to help families with children. The child allowances have remained unchanged since 1963. It is generally agreed that the tax threshold for families with children is unduly low. I have therefore decided that the great bulk of the personal tax remissions this year should go to taxpayers with children. I propose to increase all the child allowances by £40.

The benefit to the family man will be substantial. For instance, for the family with two children the tax threshold will be raised by about £103 a year or nearly £2 a week and the tax—where there is full liability—will be reduced by £31 a year. Or consider another example, where the father is earning £28 a week, which was the average for adult male manual workers shown by the latest Department of Employment inquiry for October. In this case, the father with two young children will, in addition, save £13 a year as a result of the reduction

in the standard rate, making a total cut in his tax bill of £44 a year. The comparable tax reduction for a three-child family is over £58 a year. The House will agree that these are worth-while reliefs for families where help is most needed.

I hope and expect that the new P.A.Y.E. code numbers will be issued in time for people to benefit in their pay packets at latest by the first pay day after 5th July. The major recoding operation necessary for this change is one of the main reasons why unification of income tax and surtax cannot start sooner; but I took the view that this tax reduction for families should have priority. Further details of the effects of the reduction in the standard rate and of the increase in child allowances will be found in the Financial Statement and Budget Report.

Although there will be no change in the rates of surtax for the year 1970–71, my second priority, in the field of personal taxation, is the need to rationalise the present absurd marginal rates on large earned incomes. In the coming year, the new rate of income tax on earned incomes—effectively 30·14 per cent.—applies to all earned income up to £4,005 a year. Above that level the marginal rate of tax increases rapidly and erratically, partly because of a reduction in the earned income relief to one-ninth and its disappearance above £9,945 a year, and partly because on earned incomes above about £5,500 a year surtax begins to be payable as well as income tax. The combined effect is to produce a steeply rising graduation reaching a top rate of 88¾ per cent. on earned incomes exceeding about £18,500 a year. It would have been 91¼ per cent. but for the cut in the standard rate which I announced last autumn. I regard such a top rate as confiscatory. It has no parallel in any western community; it serves no fiscal purpose, no social purpose, no economic purpose.

The top rate of tax on earned incomes which I have in mind for the new system is 75 per cent. reached at a level of about £20,000 a year. This objective can, for all practical purposes, be achieved straight away by increasing the earned income relief above £4,005 a year from one-ninth to 15 per cent. and at the same time abolishing the upper limit. This will give


a top rate on earned income of 75·4 per cent. reached at about £20,500 a year. It also produces a smoother and better graduation over the full range of income above the band at present effectively charged at 30·14 per cent.

This change, like the improvement in the child allowances, will take effect for 1971–72. When the new system comes into force in 1973, the new unified scale of higher rates will replace the scale which I have just described.

The cost of the improvements in the child allowances will be £163 million in 1971–72 and £207 million for the full year. The cost of the relief for the higher earned incomes will be £16 million in 1971–72 and £38 million for the full year, divided roughly equally between income tax and surtax.

Income tax has been with us on and off since 1799. Surtax was introduced, as super-tax, in 1909. Sir Winston Churchill took the first steps to amalgamate the income tax and the supertax in 1928. It is high time we finished the job, and my proposals will do just that.

P.A.Y.E. Non-cumulation

Before I leave the field of personal direct taxation, I must mention a major administrative simplification which is being considered. We have been thinking about the whole structure of the P.A.Y.E. system. This has now been operating much in its present form for 25 years, although the Revenue have begun a mechanisation programme under which, by the end of this decade, the P.A.Y.E. work of tax offices would be concentrated in a number of centres where many of the clerical operations would be carried out by computers. P.A.Y.E. in Scotland is already dealt with in this way.

This mechanisation programme would yield significant staff savings in the long run, but I came to the conclusion that the possibility of more fundamental changes in P.A.Y.E. should be considered. The Revenue have therefore begun a study into, among other matters, what would be the likely impact on the public, on employers and on the Department, if P.A.Y.E. were replaced by a non-cumulative system of deduction of tax from wages and salaries—that is, a system

under which the tax deduction from any payment to an employee is made without taking account of previous payments and tax deductions. Because any such change in P.A.Y.E. would almost certainly involve substantial alterations in departmental organisation and in the Department's intended computer profile, management and computer consultants have been engaged to take part in this study and—as my hon. Friend the Financial Secretary announced on 7th December—the present mechanisation programme has been largely suspended. As soon as the studies are sufficiently advanced, the Revenue will get in touch with representative bodies for industry, commerce and the public to seek their comments on possible changes.

I know that the suspension of the present P.A.Y.E. mechanisation programme has caused some anxiety in towns where the computer centres were to be set up and I am therefore aware of the need to reach a decision as soon as possible. Several years' preparation will be necessary if it is decided to make the change to a non-cumulative system of P.A.Y.E.; but, if we do so decide, the further saving in the staff of the Inland Revenue would in due course be very great.

INDIRECT TAXATION

I come now to the reform of indirect taxation. In our election manifesto we said this:
We will abolish the selective employment tax, as part of a wider reform of indirect taxation, possibly involving the replacement of purchase tax by a value-added tax.
We also made it clear that no decision would be taken on a value-added tax until the case for it had been thoroughly investigated with the help of the Civil Service.

That review is now complete, and it has involved the Customs and Excise Department in a very full study of the introduction of a V.A.T. in this country. They have examined the systems of V.A.T. in other countries, and they have visited some of them so that they could see at first hand how the tax worked. For reasons which I shall explain shortly, I have decided that, as from April, 1973, both S.E.T. and purchase tax will be abolished and a value-added tax will become operative. A Green Paper is being


issued today. It will be the basis for comprehensive discussions and consultations about the administrative and other details of the tax, and legislation will be introduced next Session. This will involve the most fundamental change in our scheme of indirect taxation since purchase tax was introduced just over 30 years ago.

We have frequently explained why we consider S.E.T. to be a thoroughly bad tax. It is unfair and it is arbitrary. It discriminates between one employment and another in a way which is quite indefensible—both in general and in detail. The distinction between manufacturing and services is in fact quite untenable. Moreover, the scheme of the tax involves the Government in collecting some £2,000 million with one hand and giving back nearly £1,500 million with the other—but after an interval. The result is that even those who are in no way liable to the tax have to make a forced loan to the Government. For these and other reasons the tax is almost universally disliked.

Purchase tax has some obvious advantages, but it also has one major disadvantage, and that is that it bears particularly heavily on a limited number of goods and not at all on services. The desire to broaden the base of indirect taxation was, I believe, one of the reasons why the previous Government decided to raise additional revenue from the S.E.T.

I have, of course, considered a number of alternatives—

Mr. Faulds: Resigning?

Mr. Barber: One suggestion that has been made from time to time is that S.E.T. should be replaced by a general employment tax. Such a tax would certainly be simple to collect, but it has one overriding and I believe conclusive disadvantage. Under the international rules, such a tax would not be rebateable on exports nor chargeable on imports. It would for this reason have a serious adverse effect on our balance of payments in comparison with the continuation of the present combination of purchase tax and S.E.T., even though these taxes also enter to some extent into export costs. Apart from other considerations, this effectively rules out a move to a general employment tax.
S.E.T. and purchase tax at present add an estimated £60–70 million a year to

our export costs, and the replacement of purchase tax and S.E.T. by a value-added tax will enable us to remove the whole tax charge from the prices of our exports and to impose it on imports, and to do so on a basis compatible with our international obligations. But there is much more to it than that. The value-added tax is, by its nature, a comprehensive tax, and its introduction in this country will produce a much fairer system of indirect taxation.
At this point, there is one aspect that I should make clear. The decision to replace our present system of selective taxation by a broad-based value-added tax should not be interpreted as meaning that we are proposing universal coverage at a single rate. We have made it clear that food will be relieved of the tax, except perhaps those few items already subject to purchase tax, and also newspapers, periodicals and books. And there will be an exemption for small traders. There are also arguments for special treatment in other cases. But I must stress that it will not be possible to entertain too many of these special cases or one of the main points of the new tax will be lost. As the new tax will not become operative until April, 1973, the precise rates and coverage are matters for decision much nearer the time of introduction and, until those decisions are taken, it is impossible to say what effect the change-over might have on the cost of living.
A great deal of preparatory work will be needed before the new tax can be brought into effect. It must be based on firm foundations and its design must take into account the practical problems of particular sectors of the economy. It is for this reason that I decided to issue a Green Paper, as a basis for consultation with those concerned. The period of two years that I have allowed for the preparatory work is less than the time taken by many other countries to introduce a value-added tax.
I mentioned that, in our review of indirect taxation, we have had the advantage of the experience of other countries. The list of countries overseas which have introduced a value-added tax is long and growing. Its advantages are becoming more and more widely recognised. The E.E.C. has adopted it as the common form of turnover taxation for its members


and, if our application to join the Community is successful, we shall in any event be required to introduce it here. But this is not the main reason for its introduction here. The value-added tax, on its merits, is a better tax than either S.E.T. or purchase tax. It is, I think, significant that, outside the E.E.C., Norway, Sweden and Denmark have already introduced a value-added tax as being, in their view, the best form of general indirect taxation. Ireland will do so shortly, and other countries have it under consideration.
The Green Paper to which I referred will serve two purposes. First, it will explain the system to those who will be affected by the new tax. Second, it will provide the basis for consultations in the coming months with trade and professional associations and with other interested parties so that legislation can be drafted. As I have said, the Bill will be introduced next Session.
The Government arc pledged to abolish S.E.T. I must tell the House that my regret is that this tax which, as I said, is so disliked, but which now yields some £500 million a year, cannot be abolished this year.

Hon. Members: Oh!

Mr. Faulds: An election pledge?

Mr. Barber: I have, however, decided that as from the earliest practicable date, 5th July, all the rates of S.E.T. shall be cut by half.

Mr. Faulds: On a point of order. Mr. Deputy Speaker.

Hon. Members: Sit down!

Mr. Faulds: I will wait until you are ready. May I congratulate the Government on having half kept a promise.

Hon. Members: No!

Mr. Deputy Speaker (Sir Robert Grant-Ferris): Order. The whole House is very pleased to see the hon. Gentleman back in his place, but I hope that he will not take too much advantage of the good will of the House towards him, which is very real, by raising points of order which he knows are not points of order.

Mr. Barber: I should now like to give the House the new rates. I am sure that both sides of the House would like to

know what the new rates will be. The new rates will be £1.20 for men, 60p. for women and boys, and 40p. for girls.
This reduction of S.E.T. by one-half will help in the fight against inflation, for it will have a direct influence on prices—both prices to consumers and prices which enter into industrial costs. This reduction in S.E.T. will also cut by one-half, or upwards of £100 million, the average amount outstanding of the forced loan from manufacturing industry to the Government, which arises from the arrangements for collection and repayment. In this way it will strengthen the liquidity of companies in manufacturing as well as in service industries and so help with the financing of working capital and investment.
In revenue terms, the net cost of the reduction in S.E.T. will be £290 million in 1971–72 and £245 million in the following year. In demand terms, it will play an important part in providing the additional stimulus which, as I said earlier, I consider to be necessary, although the effect on demand will be less than the revenue cost, and will build up gradually.

CONCLUSION

This Budget has been concerned with longer-range plans for reform as well as with the immediate measures which the economic outlook now requires. These latter measures will lead to a reduction in revenue of £546 million in 1971–72, and about £680 million in a full year. The effect on demand in 1971–72 will be substantially less than the cost in terms of revenue, but, as I have said, my aim is to raise the rate of growth of output over the year ahead to about the rate of growth of productive potential.

For 1971–72, the central Government's borrowing requirement is now forecast to be a little over £600 million and that of the public sector as a whole about £1,200 million. This figure may seem large—and it would have been somewhat larger, but for the postal strike—but the public sector borrowing requirement is in no sense a measure of the extra spending power which will be injected into the economy by the Budget. The monetary policy which I have announced reflects my determination not to allow an undue expansion of the money supply. Overall, the balance of fiscal and monetary policies


is intended to produce the right stimulus to demand in the circumstances we face at the present time.

I have dealt with a large variety of taxation proposals this afternoon, including estate duty, capital gains tax, and other proposals. But it may be helpful to the House if I conclude by summarising the basic programme for taxation reduction and reform over the next two years.

As from 6th April, the cut in the standard rate of income tax will become effective for all taxpayers.

As from the same date, the increases in the child allowances will take effect. At the same time, the penal rates of taxation on the higher earned incomes will be reduced.

As from 5th July, all the rates of S.E.T. will be cut by half.

In this year's Finance Bill, we shall legislate to replace the existing income tax and surtax with a new and simpler system of personal taxation. The Bill will provide also for the reduction of corporation tax.

During the coming months, we shall he consulting representatives of industry, commerce and the professions about the reform of corporation tax and about the value-added tax.

Next Session, we shall legislate for the introduction of the value-added tax.

In April, 1972, we expect to be ready to announce our decisions for the reform of corporation tax, and to implement them in next year's Finance Bill.

Finally, by April, 1973, all the legislative and administrative processes will be complete and the reforms will come into full effect.

I must pay tribute to the magnificent co-operation of the Revenue Departments. The Inland Revenue and the Customs and Excise tell me that these changes constitute the most comprehensive and far-reaching reform of the tax system this century. The magnitude of the operation, to be completed within two years, is self-evident.

It is right that I should end with this warning. All our hopes for the future will be but dust in our mouths if we do not repel the assault upon the value of our money. This must remain our first priority.

This Budget alone will not solve all our economic problems; but it does herald a new approach, an approach based on the belief that lower taxation and simpler taxation will, over the years ahead, help to create a new spirit—a new spirit of personal endeavour and achievement which alone can provide our nation with growing prosperity.

Mr. Deputy Speaker (Sir Robert Grant-Ferris): I remind the House that there are a further 15 Resolutions to be put to the House on the last day of the debate. The only one which we are now to debate is No. 1, and the remainder will be put from the Chair—in condensed form, I hope—on Monday.

AMENDMENT OF THE LAW

Motion made, and Question proposed,

That is it expedient to amend the law with respect to the National Debt and the public revenue and to make further provision in connection with finance; but—

(1) this resolution shall not authorise the making of amendments of the enactments relating to purchase tax, other than amendments about the remission of tax on exported vehicles, and other than amendments making the same provision for chargeable goods of whatever description, or for all goods to which any of the several rates of tax at present applies; and
(2) neither this resolution nor any resolution relating to selective employment tax shall authorise the making of amendments of the enactments relating to selective employment tax so as to give relief from tax—

(a) by way of exemption from, or a reduction in the rate of, tax except in respect of all persons of the same descriptions relevant for determining the rate of the employer's flat-rate contribution with which the tax is combined, whether that contribution is under the National Insurance Acts or under the corresponding enactments in Northern Ireland; or
(b) by way of providing for payments to employers of an amount equal to the whole or a specified part of the tax paid if the proposed provision—

(i) is in respect of employers in, or at establishments in, part only of Great Britain; or
(ii) extends to employers in, or at establishments in, Northern Ireland; or
(iii) is in respect of all persons in any particular description of employment in all parts of Great Britain, and relief in respect of the whole of the tax paid could be given in respect of that description of employment by an order under section 9(1)(a) of the Selective Employment Payments Act 1966 adding that description of employment to the


employments to which section 1 or 2 of that Act applies; or
(c) by adding or removing any employer to or from the employers to whom section 3 of that Act applies, or
(d) by amending the provisions of Schedule 1 or Schedule 2 to that Act.—[Mr. Barber.]

5.26 p.m.

Mr. Harold Wilson: It falls to me—in this, I speak for the whole House—to congratulate the right hon. Gentleman the Chancellor of the Exchequer on the manner in which he presented his Budget, on his clarity and felicity of expression, and on the helpful way in which he marshalled the compendium of facts and proposals necessary to the presentation of his case to the House. It can assuredly be said that he maintained the interest of the House to the end of his speech, and I am sure that he will be glad to feel, as the whole House feels, that this has been his best speech—I am referring still to the form rather than the content—that he has made in this Parliament.
As to the content of the speech, on both his analysis and doctrine and his proposals the right hon. Gentleman will find us significantly less enthusiastic. The reasons for this will be successively deployed by my right hon. Friend the Member for Birmingham, Stechford (Mr. Roy Jenkins), the former Chancellor, when he seeks to catch the eye of the Chair tomorrow, and by others of my right hon. and hon. Friends who will be speaking both from this bench and from the benches behind me.
My first impression is that, judged against the opportunities open to the Chancellor and the clear priorities which he should have followed, this Budget fails to rise to the occasion with which he was presented. [Laughter.] When they have got over their Budget euphoria and looked across the two-year period and what the Chancellor has announced, hon. Members opposite will be less than enchanted by it, because it is a two-nations Budget, in both direct and indirect taxation.
The right hon. Gentleman's presentation was clever. He has offered the family man in direct taxation reliefs 12s. a week on child allowances, but this will be eroded by price increases—on present form—within weeks; and he has done this in 'order that he may feed his lambs

in the four top surtax classes. Perhaps the right hon. Gentleman will tell us when he replies to the debate how much of that 12s. a week reduction must be paid for by that same man in the increased stamp contributions which he announced this afternoon and of which he did not give us the details.
I shall come to the S.E.T.-V.A.T. question in a few minutes, because the proposed change will mean for the average family very large increases in the cost of living.

The Prime Minister (Mr. Edward Heath): indicated dissent.

Mr. Wilson: Certainly, it will. That is why the right hon. Gentleman refused to mention it throughout the election campaign. The least the Prime Minister can do now, as a debt of honour, is to bring back the Tory Central Office official whom he sacked during the Election campaign for blowing the gaff on V.A.T.
The Chancellor must have realised the priorities he had to meet in this Budget. The first was to attack the present intolerable and rapidly-growing unemployment, which under the right hon. Gentleman has now reached 750,000, so often forecast by the Prime Minister for us. The right hon. Gentleman should have attacked this by soundly-based policies for growth, of which we saw no evidence in his speech this afternoon.
Second, he should have announced measures designed to stabilise prices, which we have not had—

An Hon. Member: What about the S.E.T. reduction?

Mr. Wilson: Certainly not S.E.T. I will come to S.E.T. in a moment, as the Prime Minister knows I will.
The third priority for which we called was for something to be done for pensioners. We all welcome the fact that the Chancellor has offered the increase of £1 a week, but he will know from an answer given by one of his colleagues yesterday that since November, 1969 the value of the pension has already been reduced by 50p, half the amount he is talking about, and the greater part of that fall has occurred since the present Government came to office. To delay the payment of the increased pension until September means that by then the value


of the pension will be very little above what it was two years ago.
The Chancellor knows that in economic terms he is starting from a situation in which we are spiralling down into the deepest recession since the War. On top of that, successive shocks to confidence, such as the Government's bilking on the Mersey Docks and Harbour Board and then the big-time default on Rolls-Royce, have produced a new situation in industry, where confidence is rapidly disappearing.
The Chancellor has set out today to create some degree of reflation. Obviously, whatever figure he decided on must be a matter of judgment, and we can argue about that judgment. But he must learn, and I think that he will be willing to learn, from the United States, where there has been a substantial amount of reflationary policies, low interest rates, about which the right hon. Gentleman said nothing, and a flood of new money into the economy, which no one in the United States wants to use. All that money has been flowing into Europe, hence the Chancellor's ability to repay debt. Very much of the money used is American money attracted here by high interest rates.
The Chancellor is still left with the question, which will, I think, be the subject of the debate, whether he has done enough and in the right way to re-create confidence to avoid the spiralling into recession. As I warned one of the right hon. Gentleman's predecessors 15 years ago—and the advice was not taken at the time—you can pull a piece of string, but you cannot push it. The right hon. Gentleman may find that he is pumping money into the economy which industry cannot use because of its lack of confidence in the future.
The Chancellor should have addressed himself to the question of prices, but we have heard nothing from him on this. We have not seen a fulfilment of any of the pledges given in the General Election campaign by the Prime Minister. [Interruption.] Certainly not. The Prime Minister no doubt does not want to be reminded—and unless he wants to be reminded I will not remind him—of the words on which he won the General Election, when he promised to break into the price-wage spiral by acting directly to reduce prices. He has not done so.

[Interruption.] It was going to be done at once, not nine months afterwards. He told us how he would do it, with the abolition of S.E.T., and a firm grip on public sector prices and charges. He was going to reduce the price of coal, steel, gas, electricity and transport, and reduce postal charges. That led to the phrase that he would at a stroke reduce the rise in prices, increase production and reduce unemployment. On none of those matters have we had any action at all. The Prime Minister said that that would lead to higher pressure of demand on labour, but that that would be all right. But it has not. We now have 750,000 unemployed. The sad thing is that whereas the man who blew the gaff on V.A.T. was sacked, the man who drafted this statement is now paid a high salary in Her Majesty's Treasury.
I now come to S.E.T. Before the Election, the Prime Minister pledged an incoming Conservative Government to abolish S.E.T. in the first Budget. He has not done so. That is another of the pledges on which he was elected on which he has now once again defaulted. He has defaulted on prices, unemployment and S.E.T. [Interruption.] Right hon. and hon. Gentleman may cheer now, but the country will realise that on everything on which the Prime Minister was elected he has defrauded the electorate once again. The Prime Minister laughs. Does he deny that he said that S.E.T. would go in the first Budget? [HON. MEMBERS: "Answer."] The right hon. Gentleman is laughing it off, like all the rest.
Since the Chancellor, presumably on the Prime Minister's direction, has broken the pledge on S.E.T., let us come to the claim that S.E.T. will—

Mr. Patrick Cormack: What about the £ in your pocket?

Mr. Wilson: Let us come to the claim that the reduction in S.E.T. will reduce prices. The Chancellor has not given the House any indication of steps he will take to ensure that a reduction in S.E.T. is passed on to the consumer. Why not? It is because he scrapped the National Board for Prices and Incomes within a month of taking office and scrapped the Consumer Council soon afterwards. Even if he had wanted to ensure that the reduction was passed on to the consumer—and, of course, he did not, because he


wants the S.E.T. reductions to go not to the consumer but into the pockets of the distributive trade—he could not have done so.
I turn briefly to the Chancellor's direct tax proposals, which my right hon. and hon. Friends will examine more closely tomorrow in the light of the documentation now available. These proposals start from his mini-budget, his 2½ new pence reduction in the standard rate of income tax, that jolly, jolly sixpence we all read about in the Press the next day. [Interruption.] I am telling Conservative hon. Members what they know. That is why they do not want to listen. Hon. Members opposite will have this whether they like it or not. Independent commentators pointed out last October the Government's off-setting action to produce the 6d.—the higher charges for school meals, prescriptions, rents, rates and fares, to say nothing of food levies, all of which are coming in this week. These are all the constituents of the Prime Minister's appeal to the housewives during the Election campaign. The price of school meals is going up and free school milk is being cut. It was pointed out that all this would take away from an average family on the average wage or salary far more than the small gain from the tax relief. The commentators said that the average family would have to be earning £3,000 in order to gain net from the mini-budget policies.
But, of course, these charges were not due to begin until April—until this week—and it is therefore this week that the public starts to pay for the mini-budget promises. Most of the charges of public industries, which the Prime Minister pledged himself last June to reduce, are also to be increased from this week onwards.

Sir G. Nabarro: What about surtax?

Mr. Wilson: I shall come to that. The hon. Gentleman must be very disappointed about purchase tax today.

Sir G. Nabarro: Splendid stuff, Harold.

Mr. Wilson: There is not even a reduction of purchase tax on the red, white and blue boxer shorts in which, so we read, he sleeps in bed.

Sir G. Nabarro: I want to say only one sentence to the right hon. Gentleman.

I prefer a promise of an abolition totally of purchase tax in 1973 to a slight reduction in it now, and I am wholeheartedly in favour of a general sales tax or a value-added tax—it is the same thing—which I have always advocated.

Mr. Wilson: I am delighted to hear it, but we do not agree with the hon. Gentleman.
For most families in this country, the whole of the gain from the remission of 6d. in the income tax has already disappeared and for many it has disappeared several times over as a result of the unrestrained price inflation since the mini-Budget. A man who, at the time of the mini-Budget, was on the average wage of £28 a week, and with two children under 11, would expect to gain 20 new pence a week in tax remission. But the charges announced last October will take 56 new pence away from him, while the increase in prices since last June will take away from that same family £1·57 a week. This excludes fares which, as we know, are to go up by 50 new pence or more per week for many families. That is the answer to the Chancellor's tax remissions.
Everything that the right hon. Gentleman has offered today will be more than accounted for by price increases, fare increases, rent increases and rates increases which are due to occur.

Mr. Barber: What about the wage increases?

Mr. Wilson: Whatever the right hon. Gentleman can take credit for, it cannot be wage increases. That is a new one from him.
It is the fact that nothing has been done about prices that destroys the value of the Budget. I want to put this to both the Chancellor and the Prime Minister because I still have not decided which "Toni" produced the Budget. Two days after the election was announced, both of them went into hysterics when the retail price figure was published because it had gone up by 2·1 points, or about 1½ per cent. By which figure do they expect it to rise this April, taking into account the higher cost of school meals, the higher prescription charges, the higher road and rail fares, the higher rents and the higher rates? The rates are, we understand,


due to go up by 14 per cent. on average throughout the country, with household rates rising by 9 per cent.
I turn to the value-added tax which the right hon. Gentleman has announced as Government policy. It is to be in place of selective employment tax and purchase tax, I understand. I have always taken the view that, if we were to get into Europe on fair terms—if those terms were advantageous, right and beneficial to the country—we should have to introduce value-added tax as part of those terms. It would be part of the price we should have to pay, just as the agricultural policy of the Common Market is part of the price we should have to pay.
What I have never been able to understand is why right hon. Members opposite should rush into paying the price, both in food levies and in value-added tax when there is no certainty at all that we shall get the terms which will enable us to go into Europe. Everyone knows—we have seen it recently on the Continent with the enormous price increases following the introduction of the value-added tax—that to introduce it here in 1972 or any other year will mean an inordinate rise in the cost of living for ordinary families, even with the omission of newspapers and food. Obviously, one cannot impose it on food when one is introducing Common Market food levies at the same time. Even the Prime Minister would not penalise the average family like that.
The Chancellor did not say whether value-added tax would apply to rail fares and fuel. If it does, it will increase the cost of living still further. If it does not, it will mean that the amount of revenue which he has to raise to replace the S.E.T. and purchase tax on the narrow coverage of value-added tax will be at totally intolerable and unacceptable rates for the average family.
For the Chancellor to announce today that he is going to introduce the value-added tax anyway, whatever the terms of entry into Europe, with the certain result of acceleration in price increases and the destruction of any hopes of a fair prices and incomes policy in this country—all without any assurance about getting into Europe—is an act of fiscal masochism which would seem to invite the attention not of an economist but of a psychiatrist.
The Chancellor must ask himself—indeed, the Prime Minister has considered this—"Supposing we do not get terms, that we can accept?". Or is he prepared to accept any term offered? We do not know. The Prime Minister was very angry once before the election when I said that he was prepared to pay the price of getting into Europe without getting in. Now we see it happening under his leadership. Supposing we do not get these terms. Will the Government then be content to have Continental food prices and levies and Continental value-added tax with none of the advantages of entry into Europe?
We welcome the announcement about the increased pension and about the age relief and dependant relief allowances, which are to go up. But the right hon. Gentleman will find that we cannot support him on the aggregation of a child's income with that of the parents. This, if anything else is in this Budget, is a class proposal. It was a national scandal and one of the main forms of encouragement to tax avoidance until it was removed by my right hon. Friend. We shall want to examine the increase of the Millard-Tucker 10 per cent. to 15 per cent., which is largely a gift to the surtax payers, and we shall want to look at what he has said about capital gains tax, particularly in relation to the amalgamation of short-term and long-term gains.
I can understand the right hon. Gentleman's desire to reduce corporation tax further because of the chronic liquidity problem in industry at this time of breakdown in confidence in wide areas of industry. What we shall be much more critical about is his decision to announce once again a change in the basis of corporation tax, which appears to us to give an encouragement to increased dividend payments rather than encouragement to ploughing back for investment purposes. If he feels that that, too, will contribute to a more united and harmonious industrial situation and to better chances of an incomes and prices policy on a voluntary basis, he is wrong.
As we debate this in the next week, some of the euphoria and hubris we have witnessed on the part of hon. Gentlemen opposite will be getting a little tarnished. It will be totally tarnished before the next month is out.
Certainly I concede to the Chancellor, in addition to what I began by conceding—his superb form of presentation, which the House enjoyed—that this Budget will have an appeal where it is intended to appeal—to his friends in the City and the hard-liners in industry.

Mr. Kenneth Lewis: What about your memoirs?

Mr. Wilson: I do not challenge comparison with hon. Gentlemen opposite in their sources of income.
The right hon. Gentleman will, by this means, ease the lot of a few hundred surtax payers, but by his other measures, and particularly by his refusal to tackle prices, he will worsen the lot of many millions of other tax payers and, with the increase in the stamp, he will worsen the lot of tens of millions of tax payers. Undoubtedly this Budget will appeal to his friends in the City and the hard-liners in industry. [HON. MEMBERS: "Again?"] I wanted to say it again to give hon. Gentlemen opposite a chance to cheer. It will no doubt also stimulate the flow of funds to the Central Office. [Interruption.] Indeed, I have no doubt about that.
The Budget will bring a degree of confidence to the money dealers—to those who make money and not to those who earn it. It is the Budget of a Bourbon. It is the Budget of people who have learned nothing and forgotten nothing. It is a Budget which will be cheered by hon. Gentlemen opposite now—

Sir G. Nabarro: Hear, hear. It is a Tory Budget.

Mr. Wilson: Exactly. That is what I was trying to say and the hon. Gentleman has said it for me.
It is a Budget which not only hon. Gentlemen opposite but the country as a whole will regret before many months are out.

5.54 p.m.

Mr. Wilfred Proudfoot: I hope that the Leader of the Opposition will forgive me if I do not comment on the points he raised in a speech which he no doubt prepared at least three weeks ago. I have already thrown away the speech that I had prepared. I trust, therefore, that hon.

Members will bear with me as I speak from flimsy notes.
It is a deep honour to be called shortly after my right hon. Friend the Chancellor of the Exchequer presented what I consider to be the best Budget since the war, not just for hon. Members on this side of the House but for the whole community. I am glad he carried out some of the policies which, in a humble way, I have been advocating for at least three weeks. I thought, however, that on social grounds he might have increased the duty on tobacco to prevent people from smoking themselves to death. This is a Budget of sound common sense and is designed to help the whole of society.
The Leader of the Opposition made a profound mistake when he criticised some of my right hon. Friend's tax cuts. If he examines the Budget introduced by the right hon. Member for Birmingham, Stechford (Mr. Roy Jenkins), he will find that many old-age pensioners found themselves paying tax at a rate which they did not pay before last July. That was a cruel step for the then Chancellor to have taken.
My right hon. Friend has undoubtedly given journalists and commentators plenty to talk and write about in the coming months. They have been rather short of interesting news recently and I am delighted that he is pursuing some of the radical measures which my right hon. Friend the Prime Minister promised before the last election we would, if elected, take. This is a reforming Government and I am glad that our first full Budget should have been of such a radical nature.
I am delighted that the Chancellor has announced certain steps that will be taken in the coming two years. Nobody but a fool would imagine that great administrative changes such as he is proposing could be made at the drop of a hat.

Mr. Kevin McNamara: Not even at a stroke?

Mr. Proudfoot: I will ignore that cheap political point.

Mr. McNamara: The hon. Gentleman cannot ignore the fact that his right hon. Friend said it.

Mr. Proudfoot: Radical changes of this kind cannot be made without tremendous preparation. It is only right, therefore, that the public should be warned of what this modern Government intend to do in the coming years.
I was particularly delighted by my right hon. Friend's references to the banks. We have seen a proliferation of what are sometimes called "near banks" and the joint stock banks have not been able to lend to small business men because of the administrative action taken by successive Governments. I hope that in the coming months the restrictive practices involving the banking cartel will be broken down, so enabling competition to take place in banking. This competition should apply to the rates which banks charge when lending and to the rates they pay when borrowing. I am sure that the small man will gain from the measures announced by my right hon. Friend.
It is part of the dictum of the Prime Minister that people should stand on their own two feet. Small business men should, when told by a bank manager, "I can lend you money but I shall have to do so at a rate higher than that which you might otherwise have paid", be thrown back on their own resources, do their sums again and see what other courses are open to them.
I am glad that the earnings anomaly applying to married couples is to be brought to an end. The spread of business income is right. I am equally delighted to see an end of stamp duty, though if it is due to finish on 1st August, what is to happen to those who wish to enter a property transaction between now and that date? My right hon. Friend's proposals for corporation tax are welcomed, and it seemed obvious, in view of the inequity on shortfall, that these steps were necessary. The child allowance changes must be welcomed by all. I wanted to see a change in surtax, with a move to a graduated scheme right up to 75 per cent. This step is perfectly right for the nation as a whole and particularly for the go-getters and technologists. They will be encouraged as part of the Government's strategy in this sector.
The P.A.Y.E. system has always operated over a full year. Do the changes mean that it will be non-cumulative in its

repayment effects? This question is important in relation to some of the strikes that we have been witnessing. I am delighted by the introduction of V.A.T., whether or not we enter the E.E.C. It is only right that we should begin to change to V.A.T. now because, in any event, I believe that we shall eventually be in the Common Market.
I accept that S.E.T. should not be a method for reducing the cost of living, as it were. The cost of S.E.T. to one business with which I am acquainted is £1,400 a year. However, this firm faces the introduction of equal pay for women. which I welcome, but that will mean an increased wage bill of £5,000. The Leader of the Opposition should do his homework in this connection, particularly when he refers to the distributive trades. Down goes selective employment tax, quite properly, but it should not be canvassed as a way of bringing down prices, because it will go towards the achievement of equal pay. We on this side of the House believe in equal pay for equal work between the sexes.
My right hon. Friend said that the value-added tax will not apply to food. There is a remark worth making about food prices because of the Common Market context of my right hon. Friend's speech. If we were to go into the Common Market tomorrow and prices were equated, it would be found that our prices were not as high as they are in most continental countries. Our prices would be 6 per cent. below those in France, for instance, because the distribution system in this country is 6 per cent. more efficient.
I should have liked to see in the Budget proposals for free depreciation. We must get round to it sooner or later to encourage business to modernise its equipment. When I was previously a Member of the House I remember that Harold Macmillan, then the Prime Minister, used to shake his head and say, "Before this country comes to its senses it might have to go through terribly hard times." I know, because I came from the same part of the country as he did, that he was thinking of vast unemployment and of his experiences when he was the Member for Stockton-on-Tees.
The Budget today has indicated that the Government will never try to achieve


their ends by creating gross unemployment figures. The gentle reflation about which we have heard today is about right for the economy.

6.2 p.m.

Mr. R. B. Cant: I must begin by expressing a measure of agreement with the Chancellor of the Exchequer. Politically, this is always fatal, but I try to be a reasonable man at all times. If what the right hon. Gentleman said and what is printed in the Red Book means that he intends to add to aggregate demand about £500 million in the next fiscal year, that is about right. However, I am surprised that, in the last analysis, he should emerge as a good National Institute of Economic and Social Research man. Accepting that a greater reflation than is proposed would have placed a strain on our balance of payments, we then come to the great divide. Obviously the Chancellor lives in a different world from us. He was no doubt born in a bed in a quite different house and of quite different parents.
I began to wonder, as the right hon. Gentleman was unfolding very efficiently his sage of tax reductions, whether he knew the sort of problems which faced us and whether he felt that what he proposed would help to solve the unemployment problem and the problem of the poor. I hesitate to liven up the small number of Members present by telling a joke, but the right hon. Gentleman reminded me of a review by an American which I read of "Lady Chatterley's Lover". He said that, having read the book, he must recommend it because it gave remarkable insights into a natural historical phenomenon; it gave great help to anyone who wished to practise the practical art of gamesmanship. He added, however, that unfortunately it contained a lot of extraneous matter which was of no interest to anybody of serious mind.
It seemed to me that the Chancellor of the Exchequer had misread almost completely the situation in which the country finds itself. All I can say about him is that he is a Chancellor who never missed an opportunity to do his friends a favour. They have been lavishly endowed and richly blessed by this Budget.
I turn to the more general considerations and leave the particulars to the tax lawyers on the benches opposite. I wonder what the proposed reflation adds up to in terms of bringing a breath of life to our economy, with over 750,000 unemployed. The great mistake which the Chancellor has made is that he has directed his very substantial tax cuts to the problem of increasing incentives in the economy whereas he should have directed them to the much more relevant consideration of reducing prices.
In the opening sentences of his major speech, at any rate in chronological terms, the Chancellor used all the old platitudes about incentives, effort, savings and investment. He got delightfully wound up on this theme. But I should have thought that if there were any philosophy which one could regard as bogus and old-fashioned in economic discussion, it was precisely this.
I do not want to recite the bits of research which have been published to show how irrelevant even marginal tax rates are to effort and incentive. The latest is one of the most revealing because, when a range of executive types who are supposed to respond to these reductions were asked how much tax they paid, not one of them had the slightest idea.
We know the purpose of the hand-out: it is merely to increase the income of the friends of the Chancellor of the Exchequer rather than to increase incentive to work and effort. [An HON. MEMBER: "And savings."] It increases the incentive to save a little and the right hon. Gentleman was able to trot out the increase in savings. But the purpose is then to increase investment, and investment becomes a sort of spring which will unleash the production potential of the economy in the months and years ahead.
In economic theory there is a myth that investment responds to increases in savings. In 1936 the great economist Lord Keynes exploded this theory. He regarded the disequilibrium between saving and investment as a major cause of the capitalist crisis. We have evidence, not only in the monthly economic letter of the First National Bank of New York revealing that savings are piling up in the banks and nobody wants them, but in the figures published today by our own banks. There is a massive growth of


liquidity and the banks are not lending as much as even the Government would like.
If one takes any economic indicator in relation to investment and tries to find a single correlation between investment and such things as the rate of interest one cannot. No one knows what determines the level of investment. It is possible that it can be correlated only with changes in gross national product, but even this is not absolutely certain. The proof of this is that in suggesting what the level of investment might be at some future date the Department of Trade and Industry is dependent entirely on subjective surveys of businesses.
If the right hon. Gentleman believes that investment will surge ahead because he has reduced corporation tax and done other things to promote an increase in savings, he should dig a little more deeply into the problem. He hoped that investment would grow and absorb the spare resources and, if investment did not grow, he expected that exports would take up the slack. This is equally doubtful. The conclusion we must draw from what he said this afternoon is that he is depending on a consumption-led boom, which we are told by all the economic commentators is the worst possible type of boom which will lead us soonest into balance of payments difficulties.
Apart from opposing these regressive changes in taxation, I believe that the Chancellor should have done much more to attempt to restrain the rise in prices. If there is one thing that is adding fuel to the fire of cost inflation, it is that prices keep on increasing. If prices could have been curbed by a reduction in imposts such as National Insurance contributions, purchase tax and so on, this would have made a significant contribution to the problem. But that was not the Chancellor's line of country. He said. "Let us reduce S.E.T.", but all that will do is further to increase the liquidity of companies; it will not decrease prices.
Not only did the Chancellor take hardly any direct action about prices, but he failed to do anything to try to rebuild the bridges with the trade union movement which have been virtually destroyed by the Industrial Relations Bill. We have seen in the House in the last few weeks, including today, a naked confrontation of power between the classes which possess

the wealth and the trade union movement. This will not do.
The Prime Minister likes to think that he is tough—and he is tough. There is a story going round in trade union circles that when the trade unionists came away from seeing the Prime Minister one of them said to a reporter, "He is reputed to be a man of very few words. He greeted us with two of them." This may be an apochryphal story, but I do not think this toughness, this abrasiveness, will get the country through its difficulties, as the Prime Minister would like to think it will. To try to meet the trade union movement the Prime Minister should have set up a prices review committee, not to freeze prices but critically to review the 600 key prices in our economy. This would have given the trade union movement a feeling that lie cared about the things that trade unionists think are important.
It is a tragedy that the Prime Minister should go on in this way. He may succeed or he may fall flat on his face, but, whatever his personal fate, it is the fate of the country that matters. Sometimes when I see him on television or at the Dispatch Box I have a grim feeling, almost a foreboding, recalling the speech of a South American dictator who once said, "When we came into power Brazil was on the brink of an abyss. Since then we have moved forward." If we are not careful, I have a suspicion that this is likely to be our destiny, too.
I will spend one minute on a subject that is slightly esoteric but near to my heart, although I do not want to masquerade as a desiccated calculating machine. In one passage in his statement the Chancellor of the Exchequer either did not know what he was talking about or he was deliberately misleading the Hous—

Mr. Charles Pannell: Both.

Mr. Cant: As my right hon. Friend says, both. This concerns the question of money supply. Without doubt the Government have lost control. They have lost control for the simple reason that they will not face the fact that money supply is increasing not only because of the balance of payments surplus but because of the masses of "hot" money flowing into the country.
They are adopting all sorts of techniques to offset this trend by using, for example, special tap issues, "operation twists" and heaven knows what, but the only way in which money supply can be brought under control is by preventing this money ever coming into the country. The only way that they can do that is to reduce the interest differential between London and other financial centres. The only way that can be done is by reducing Bank Rate, and the sooner that happens the better. That would help in the control of money supply and would be yet another price—the price of money—which would be brought down through the reduction of Bank Rate.

6.20 p.m.

Mr. F. A. Burden: It is interesting to follow the arguments of the hon. Member for Stoke-on-Trent, Central (Mr. Cant) and I agree with him that it is bad that so much "hot" money is coming into the country. However, I would point out that such money is being attracted here because people abroad have confidence in our present financial position. The curious thing is that towards the end of the period of office of the previous Government, despite the fact that Bank Rate was as high as it is now, that "hot" money was not coming in because foreigners had no confidence in the future of this country. There is a great difference in the situation today, and I am sure that the hon. Gentleman is encouraged, as is the rest of the world, by the considerable repayments of overseas loans, borrowed by the Labour Government, who then reneged on repayments. These repayments are to the credit of the present Government and will increase our financial standing and status in the world.
The hon. Gentleman also referred to the 750,000 unemployed, and nobody with any decent human feelings wants to see a considerable number of people in that situation. The whole employment situation is based on the general economy of the country. Why was it that the Labour Government went to the country in June last year when they had another full nine months to run? Was it because they thought that the sun would be shining in June, whereas clouds were bound to appear in the autumn because of the wage inflation deliberately encouraged by

the Labour Government? Did they fear that this would turn into a downpour which would ensure that they would be defeated even more heavily at the election? I believe that that was the reason, and I believe that the one person above all others, who miscalculated, was the right hon. Gentleman the Leader of the Opposition, to whose speech we listened a little earlier.
Right hon. and hon. Gentlemen opposite speak with two tongues. I am not saying that this applies to the hon. Member for Stoke-on-Trent, Central, but it certainly applies to some of his hon. Friends. Some hon. Gentlemen opposite who sit below the Gangway and who, during the Labour Government's period of office, were always criticising their own side are now still blackguarding them for some of the suggestions they did their best to ensure were not carried out and which Labour Government knew to be necessary. They are now saying to the present Government, "You must reduce prices but must do nothing whatever to stop the most extravagant of wage demands". Anybody with any economic sense knows that that is the way to despair, not only in regard to the 750,000 unemployed, who I believe will have far more chance of getting back to work as a result of this Budget, but for many thousands of other people who inevitably will be forced out of work if we cannot ensure that the goods we produce can be sold economically in competition with other countries.
I had an interesting experience only two weeks ago. I was invited to dinner at a working men's club in my constituency. During the evening, the talk turned to the subject of cars and the chairman, who was sitting at my table, said that he had just bought a German Opel. He was a retired seaman and bought that car because, in his view, it was between £100 and £200 cheaper than anything comparable made in this country. He said that the car had far more refinements than anything here, that it does 80 miles per hour; 40 miles to the gallon and runs on two-star petrol. The lesson in that story is that, although many of us always like to feel that people would buy British even at a higher cost, we must remember that that German vehicle paid considerable import duty to enable it to be brought into this country. Therefore, the


basic cost of that car—when one excludes the import element—is much less than the cost of the home product.
For too long we have taken the view that the rest of the world will buy British because of the old standards of quality and price. But we must now face the fact that there is no preference in the outside world for British goods just because they are British. The only way in which we shall sell our products abroad is by making them at the right price, with the best delivery time, performance and finish. Unless we can do that, it does not matter what is done by Government exhortation, by the trade unions or by anybody else, there will be a considerable growth in unemployment and a decline in our economy and our living standards.
Hon. Members opposite are doing everything they can to oppose the Industrial Relations Bill. Many hon. Gentlement, particularly those who are regarded as Left-wing Members, have stated in the House quite openly that they forced the Labour Government to withdraw their proposals to introduce such legislation based on "In Place of Strife". They are quite blatant about it, and lose no opportunity to make it clear that they forced their Government not to do many things which that Government felt to be right in the interests of the country.
Sometimes I find it very difficult to sit in this House and listen to the speeches of right hon. and hon. Members opposite. The right hon. Member for Blackburn (Mrs. Castle), for example, said in "In Place Of Strife" that not only was an industrial relations Bill necessary but that the very future of the Labour Government depended upon it. But, of course, the Labour Government ran away from it and, because they knew what was likely to result in the autumn, they had to have the General Election in June so that the full impact and effect of their cowardice would not be evident.

Mr. George Lawson: Is not it a waste of time to attack my right hon. and hon. Friends when they are not here? Why does not the hon. Gentleman devote his attention to the Budget?

Mr. Burden: With respect, the hon. Gentleman has not long been in the Chamber. It was his hon. Friend the Member for Stoke-on-Trent, Central who

attacked the Conservative Party because of the Industrial Relations Bill. If right hon. and hon. Members opposite are not present on the Front Bench, that is not my fault. They should be here. The hon. Gentleman should bring them in.

Mr. T. H. H. Skeet: Where are they?

Mr. Burden: Their absence shows that they are probably doing their homework. It is necessary for them to do that so that they can attempt to denigrate this Budget.

Mr. Ernest Armstrong: They are not missing much at the moment.

Mr. Burden: The hon. Member for Stoke-on-Trent, Central told the House that he thought that the present Prime Minister was too tough. I find it a relief to see some toughness after a Government who were led by a man who was so vacillating and weak. Good, firm government is what the country needs. In the long term, it will respond to it. The Government have shown today that they are determined to govern in an enlightened way, looking to the future, and I believe that they will govern in a way to which, ultimately, the country will respond.
I hope that right hon. and hon. Members opposite will not take steps to try to ensure that the trade unions do not respond to that which is necessary for the future of the country: we must have discipline on both sides of industry and an understanding that, if we are to progress, we have to go into the future in a forward-looking way. I believe that this Budget will provide the necessary stimulus for the future.
I was glad to hear my right hon. Friend refer resoundingly to the word "profitability". The word "profit" had become a dirty word even at the end of the period in office of the last Conservative Government because of the activities and statements of right hon. and hon. Members opposite. In their own reign, it disappeared almost entirely. It seemed to be unmentionable. From the point of view of companies, it certainly disappeared almost entirely. Profitability means the creation of wealth. It is from


the creation of wealth that the country prospers, out of which workers get their employment and out of which it is increased. It also enables workers to improve their standards of living. We were a great trading nation. We have to be again unless we are to see our present standards of living gradually reduced until we become a nation with one of the lowest standards of living in Western Europe and, indeed, the world.
There was one disappointing feature in the Budget. I was hoping that my right hon. Friend would be able to give pensioners a little more. It is true that this party is committed every two years to examining and, if necessary, raising old-age and other pensions to take care of any inflation. I was hoping that single persons would be given a little more than an extra £1, that the pensions of married couples would have been raised a little higher than £9·70, and that a little more would have been given war pensioners and others.

Mr. Cormack: While I have sympathy with what my hon. Friend says, I am sure that he will acknowledge that this is the biggest ever single increase.

Mr. Burden: That is quite true, and it is in line with Conservative philosophy. During the reign of the last Conservative Government the standards of living of pensioners were increased more than at any time in our history, whereas during the period of the Labour Government they declined below those which prevailed when the Conservative Government went out of office. We have restored the position, but I was hoping that we would do even better, in view of the party's philosophy to look after those who are least able to look after themselves.
It is striking how often right hon. and hon. Members opposite fall into a trap. They are guileless. One could not help noticing the screams of laughter which came from the benches opposite when my right hon. Friend said that we would like to do away with S.E.T. Right hon. and hon. Members opposite thought that my right hon. Friend was doing nothing about it. Then we saw gloom settle on their faces when my right hon. Friend said that it would be cut by 50 per cent. on 5th July.
Manufacturers and members of the distributive trades have had to pay the levy. It is quite true that manufacturers get it back; but they have provided the Government with a huge interest-free loan for a considerable period. This has embarrassed many companies since it has reduced their liquidity and available funds for expanding their businesses and for investment. If they wished to expand their busnesses or invest in new machinery, the tax meant that they had to borrow money from banks at high interest rates, all of which have helped put up costs and made it extremely difficult for many companies to continue. I welcome this the first instalment in the departure of S.E.T.
The Leader of the Opposition was not the clear-minded person today that he sometimes appears to be—

Mr. Skeet: He is too busy writing his memoirs.

Mr. Burden: In fact Lord George-Brown makes it clear in his memoirs that the right hon. Gentleman is frequently not very clear-minded. His confusion over S.E.T., purchase tax and the value-added tax evidenced itself today. S.E.T. is undeniably a tax on costs and ultimately a tax on sales and, therefore, a value-added tax. Purchase tax is nothing but a value-added tax as it inflates the natural cost of the article. What the Leader of the Opposition does not know, or does not admit, is that if we replace S.E.T. and purchase tax by V.A.T., we shall be replacing one value-added tax by another.
The situation with purchase tax is interesting. It is put on the cost at the wholesale point. If an article costs £1 at the time it is transferred to the retailer and the purchase tax rate is 13⅔ per cent., it reaches the retailer at £1·13½. With a 50 per cent. mark up on that total, which is the practice in shops, the total selling price would be £1·70. Out of that the Treasury would get only 13½p.
With value-added tax on the same article, as it is charged on the price at which the article is sold, the £1 would become £1·50 with the shopkeeper's profit margin. With the value-added tax added to that at a rate of 13⅔ per cent., it would total 20p, so that the selling price would be exactly the same.


[Laughter.] Labour Members laugh because they do not know. In these circumstances the Treasury would collect 20p instead of 13½p, although the cost to the purchaser would be precisely the same.
There would therefore be a greater spread of taxation without increasing the cost to the public. The benefit is that when the public pays value-added tax they know precisely the shopkeeper's price, because the tax is paid on the price of the goods alone and there is no profit on an element of tax. This disclosure could help to keep down prices.
I have looked into the system in Denmark. There is no question of the value-added tax becoming cumulative from the point of manufacture to the point of sale to the public. Some value-added tax is added on at each stage, but then recovered, until finally at the point of sale it is always consistent.
The Press and the nation generally will see that this is a Budget which looks to the future, a Budget which will give confidence to Britain in its future, a Budget of which my right hon. Friend and the Conservative Party can be very proud.

6.45 p.m.

Mr. George Lawson: The hon. Member for Gillingham (Mr. Burden) chided my hon. Friend the Member for Stoke-on-Trent, Central (Mr. Cant) and referred with great scorn to what he had said about hot money. The hon. Member had his own explanation of why hot money was flowing into the country—the confidence of the foreigner in this country. If he is sending his hot money into the country because of his confidence, that can hardly be said of the native business man, the man of enterprise about whom Conservative Members so often speak. When the Prime Minister gives his explanation of our difficulties, apart from his regular explanation about the trade unions and their demands for increased wages, he speaks of the lack of confidence in the country. There is a fair amount of substance in this statement although that absence of confidence requires some study.
The hon. Member for Gillingham did not seem to have much to say about the Budget. I find it difficult to discover major differences between this and for-

mer Tory Budgets. There is a move towards simplification, although that will not start to operate for a couple of years, if it works at all, and many things can happen in two years. However, most of us will be happy about simplification, although it will not overcome the deep-rooted difficulties under which the country has laboured for so long.
It also shifts the balance.

Mr. Burden: rose—

Mr. Lawson: I will not give way now.

Mr. Burden: I gave way to the hon. Gentleman.

Mr. Lawson: The hon. Gentleman spoke for a long time and the debate is to conclude at 7 o'clock.
As is usual with Tory Budgets, there is a marked shift in emphasis towards the taxation of poorer people, away from direct taxation, where one can measure the incidence fairly although not completely accurately, towards indirect taxation. The changes in the Budget, whether paying more to or taking less from the better off, are advanced on the basis that they will stimulate the man of enterprise. It is said that there is a need to stimulate the profitability of companies.
I do not decry profitability as one of the measures which might operate with advantage in the economy, but it is not the only measure. When one thinks of the nature of the difficulties confronting the country, one must consider much more than immediate profitability.
A characteristic of profitability is that one's mind is usually focused a short distance ahead. This nation, if it needs anything, needs people of vision who can think many years ahead and take the kind of steps and measures which will pull this country out of its difficulties.
This country is not in a difficulty stemming from anything which has been done over the past two or three years. As the Chancellor said, our difficulties go back many years. However, I go back even further than the right hon. Gentleman. I go back well before the beginning of the century when, for divers reasons—I have not time to go into them—this country began to fall behind and these


characteristics of enterprise, about which right hon. and hon. Gentlemen opposite so often talk, began to be lost and this competition began to be guarded against. As much as possible, an effort was made to eliminate competition. This has been a long chronic illness which we have not properly diagnosed, but no remedy is to be found in the propositions which have been put forward today.
I take one example of the kind of argument coming from right hon. and hon. Gentlemen opposite. I refer particularly to the Prime Minister. The right hon. Gentleman can hardly talk about our economy without the phrase "wage demands" coming from his mouth. I do not think that anyone will challenge that virtually the entire blame, if blame is to be apportioned, is put on trade unionists or workers demanding higher wages. Yet, if we look at the higher wages or increases in labour costs, this country is measuring much the same as other countries.
I have here the publication German International for February 1971. I think that most right hon. and hon. Members will receive this excellent journal. It talks of wage costs in 1970. At the head of the 11 or 12 nations listed here it puts the Federal Republic of Germany and the United Kingdom of Great Britain. Germany kept pace with us, but we do not hear this cry coming from Germany. The reason is simple. Germany's economy has been growing and ours has not.
We come back to the root difficulty facing us—the failure of the economy to grow. It is not the trade unionists who determine how fast the economy grows; it is not the British workman. It is the fellow managing the business, the man of enterprise about whom right hon. and hon. Gentlemen opposite so often speak.
We hear talk about there not being enough stimulus in our taxation system. Yet when we were paying 6d. in the pound at the beginning of the century, almost before there was a taxation system at all, we had begun to drop out of the race. Before the First World War, when the tax paid was trifling, we found that the people who had been managing our economy were dropping further and further behind.
We cannot honestly say that our taxation system extracts from people substantially more than is expected in comparable countries. We are not the highest of the most heavily taxed countries of the western world. What is usually said by right hon. and hon. Gentlemen is that the tax at the margin is such that it dampens down enterprise.
The amount which is to be saved by this so-called substantial change towards surtax payers is, I think, £16 million. There was great laughter by right hon. and hon. Gentlemen because they thought this a mocking figure. They thought that we would be disappointed because we might have hoped to hear of hundreds of millions of pounds. I was not surprised. The thought in my mind, and no doubt in the minds of most working-class fellows, is that people in that bracket do not pay all that tax. They find all kinds of ways of evading tax. We constantly hear what the man on £50,000 a year is supposed to be paying in taxes. Do not tell me or any ordinary working man that the man who can obtain £50,000 a year is returning £50,000 a year and is being taxed on it.

Mr. Burden: rose—

Mr. Lawson: I shall not give way. I make the point that the very rich are well able to avoid paying the tax. They pay some tax, but not that amount.

Mr. Burden: What did the right hon. Gentleman's Government do about it?

Mr. Lawson: Let us consider the workmen whose wage demands are causing so much trouble. I have here the January issue of what was the Ministry of Labour Gazette, now the Department of Employment Gazette, which makes a study of adult male earnings in April, 1970. I think that is near enough for my purpose. It divides the earnings into categories. There is the median or middle earning, the lower quartile, which is the first 25 per cent., and the lowest decile, the first 10 per cent. I take the lower quartile. The lower 25 per cent. of adult male full-time workers in Scotland were earning £19 10s. This is gross earnings, not take home pay. Is that anything to be shouting the odds about? Are those great earnings which should be dampened down? When we look at this kind of thing we appreciate how absurd it is.
I rose to make one point, and I am nearly failing to make it. What I want to see coming from right hon. and hon. Gentlemen opposite is some enterprise in a large way. Take, for example, the steel industry. Unless the Government become involved and find a means of enabling the British Steel Corporation to carry out its programme, and more than its programme, we shall very soon become not a second, third or fourth-rate country, but a country which does not matter at all.
Stainless steel is largely in the hands of private enterprise. Between 1960 and 1969 the output of stainless steel in this country, the most profitable form of steel, increased by only 6 per cent., whereas in Japan it increased by 422 per cent., in West Germany by 84 per cent., in France by 122 per cent., in Sweden by 106 per cent., in Italy by 250 per cent., and in other countries by 126 per cent. I give those figures quickly to show that we are not even in the league. We are in a different league altogether. We are not even in the league of the also-rans.
The same point applies to crude steel. Between 1960 and 1969 our production of crude steel increased by 8·7 per cent. The Japanese increased their output by nearly 400 per cent.
My point is that the British Steel Corporation, private enterprise or public enterprise, cannot get out of this difficulty by its own efforts. It cannot make the profits to enable it to pay on the level which the Japanese are paying. If this nation is to have any kind of industrial

standing, the Government must come in behind the steel industry and say that they want these things done and that those are the things they are going to pay for from public funds or in some other way. Unless we can do that we are all washed out. Judging by what was said today, we shall be all washed out.
Debate adjourned.—[Mr. Rossi.]

Debate to be resumed tomorrow.

ROYAL ASSENT

Mr. Speaker: I have to notify the House, in accordance with the Royal Assent Act, 1967, that the Queen has signified Her Royal Assent to the following Acts:

1. Mr. Speaker King's Retirement Act, 1971.
2. Consolidated Fund (No. 2) Act, 1971.
3. Consumer Protection Act, 1971.
4. Coal Industry Act, 1971.
5. Trent and Lincolnshire Water Act, 1971.
6. Ipswich Dock Act, 1971.
7. Teesside Corporation (General Powers) Act, 1971.
8. Cumberland River Authority Act, 1971.
9. Teesside Corporation Act, 1971.
10. British Waterways Act, 1971.
11. Essex County Council Act, 1971.

CITY OF LONDON (VARIOUS POWERS) (No. 2) BILL

(By Order)

Order for Second Reading read.

Motion made, and Question proposed, That the Bill be now read a Second time.

7.1 p.m.

Mr. Christopher Tugendhat: Today is an important day in the Parliamentary year, with the presentation of the Budget, and today was more than simply an important Parliamentary day—it was an important day in the post-war economic history of this country. Therefore, to move from one of the high points of Parliament to Private Bills of this nature is a little difficult, and I hope that the House will appreciate it if I do not dwell too long on the details of the Bill, most of which are non-controversial. If other hon. Members wish to dwell on them, I hope that they will have plenty of time to do so and will not feel that I have taken up a disproportionate amount of the time available.
The Bill has four principal purposes. It makes provision to assist in the prevention of air pollution in the City of London, it provides for the notification to the health authority for the Port of London of diseases occurring in the port, it aims to regulate further the horse-riding in Epping Forest, and it alters existing obligations with respect to the opening of Tower Bridge. It also makes further miscellaneous provisions relating to different activities in the City.
Three of these four provisions are completely non-controversial, in the sense that there has been no petition against them, and there has been no suggestion that they were irregular or unfortunate. The fourth has aroused some controversy. I will deal with the other three first.
The business about the port health authority is very simple. It makes good an omission from the Health Services and Public Health Act, 1968, and brings the City into line. The Clauses relating to Epping Forest have been promoted after consideration of this matter with all the various interests connected with the forest and will, I am sure, make the

forest an even more pleasant place than it is. I myself learned to ride in Epping Forest and I am delighted that it should now be possible to make the facilities even better for other people.
Part V of the Bill lifts certain obligations imposed originally in an Act of 1885—so to some degree this is a modernising measure—and introduces more realistic penalties for certain offences relating to city markets. In other words, this, too, I am sure, will be agreed as completely straightforward.
The controversial part of the Bill is Part II, which has been petitioned against. Like any other well-regulated local authority, the City would like and always has preferred its legislation to receive the universal approval and assent of the people involved in it. It is a matter of regret to the promoters of the Bill that it should have been petitioned against. I must make it clear that the City is not being obdurate. The Bill will go to Committee, if it is given a Second Reading, and all the aspects of this and other Clauses can be discussed there, and evidence will be subject to cross-examination.
Erskine May says that there is a crucial difference betwen a Private Bill and a Public Bill. With a Public Bill, on Second Reading, the House is expected, because it is a matter of public policy, to give its approval or disapproval to the Bill's principles. But with a Private Bill, the House is not required to approve the principles at all—only the Bill's passage to Committee. So with this Bill, where some parts have been petitioned against and on which there is more than one opinion, all the issues can be raised and examined openly in Committee. I suggest that the Committee is the place in which these issues should be dealt with.
The Clause which has been petitioned against would reduce the sulphur content in the air. This object will receive universal approval. Sulphur damages buildings, it harms plant and animal life and it harms human health. We all remember the dreadful fogs of the 'thirties, 'forties and 'fifties, when many old people suffered grave ill-health. The fogs were the cause of death in winter time.
Regardless of the difference of view on the details, I am sure that this objective will meet with the agreement of all hon. Members. This is particularly important in the very compact area of the


City of London, where many buildings are close together and an enormous number of people—400,000 a day—come into the area. During the daytime, a great mass of humanity is pressed close together, so the dangers and difficulties of a sulphurous atmosphere are perhaps greater than in more sparsely populated places, or where people are not bundled so closely together during their working days.
The Bill seeks to set standards for new furnaces installed on or after 1st January, 1972, and for all furnaces as from January 1987, so this is hardly an extreme measure. It is a gradual one designed to bring about these objects. It sets standards both for oil and for coal. For oil, the maximum permitted sulphur content will be 1 per cent. by weight and for coal 1¼ per cent. There is a Clause setting penalties for contravention.
The City has a clean air record to be proud of. It was the first local authority in the country to prohibit the emission of smoke throughout its area. This was in an Act in 1954. With this experience, and in view of the enormous advances of the last few years, the City now feels that the time has come for it to move forward. It believes that this Measure will enable the air in the City to become even cleaner, the people to be healthier, our buildings to be better and for the quality of life and the standard of the environment to be improved in any way.
We recognise that some people feel that some Clauses in this part of the Bill could be improved and that there are aspects of it which have aroused dissent. We are asking the House to give the Bill a Second Reading so that these matters may be discussed in detail in Committee. We are not seeking to set standards for the whole country. We recognise that each area has its own problems, but the City has its problems and the Bill is designed to deal with them. Therefore, I hope that the House will feel able to give the Bill a Second Reading and to enable these matters to be dealt with in Committee.

7.10 p.m.

Mr. Arthur Lewis: I congratulate the hon. Members for Cities of London and Westminister (Mr. Tugendhat) on the admirable way in which he has introduced this Bill. May I declare

a latent interest in that my first employers were the City of London Corporation who are the real sponsors of this Bill. I have nothing but the utmost praise for the City of London Corporation, for its work and many helpful activities.
I must declare an interest from a constituency point of view, too, because the City, among its many public works, maintains a number of open spaces and parks within my constituency. Were it not for the excellent work of the City I do not know what the poor people of my constituency, in the dock area of London, would do to get some fresh air. The Bill includes a suggestion to improve horse-riding facilities in Epping Forest. I support this. Over recent years parts of the forest have been churned up and this has caused difficulty to the general public, to mothers and fathers and their children out on picnics. Nothing could be worse than trying to walk through a forest churned up in this way. Even the best behaved of horses do not always control themselves, and if they do not churn up the forest there are other ways in which they can despoil the area.
I am glad that the City of London, with its usual courtesy, has discussed this with interested parties in advance and is now to develop areas where horses and riders can be happy and, more importantly from my point of view, where children and the general public will be happy. I also support the suggestion contained in the Bill to do with Tower Bridge. This is an anachronism.
I am surprised that anyone should have taken the trouble to oppose the Bill. No doubt when the hon. Member for Bedford (Mr. Skeet) comes to speak he will give his reasons for opposition. I support the hon. Member for Cities of London and Westminster, who said that there is nothing to prevent the Bill being discussed in Committee. It seems an unnecessary worry and expense to the City of London. There may be other occasions when other promoters will not be so democratic as the City of London has always been. It is always willing to discuss the provisions in its various Bills. I am sure that if the objections had been taken to the City of London they could have been overcome. Alternatively, they can be discussed in Committee.
The City of London is doing a very good job, at the expense of its ratepayers.


Most of these are large business houses so there are no real poor ratepayers in the City. It is doing something which is very good. The hon. Member made a remark about the inter-war years and the thirties and I facetiously remarked that, "We cannot all remember back that far." Some of us can and we do remember those fogs. It is right that a person could not get across from one side of the Mansion House to the other so thick were those pea-soupers. Big Ben may have stood out in the fog-laden atmosphere but in the City where there is severe congestion it was impossible.
I agree that the City should do all it can to prevent sulphur emission from furnaces. The hon. Member said that this was not meant to be a pattern but I hope that it will be. If the City can do something to prevent the emission of sulphur I hope that other authorities will be asked to copy its lead. If this is one of the objections of the petitioners I hope that that objection will not be listened to in Committee, because I do not think that it can be well-founded.

7.18 p.m.

Mr. T. H. H. Skeet: I hope to be able to allay some of the anxieties of the hon. Member for West Ham, North (Mr. Arthur Lewis), particularly since he says that this will create anxiety among other people in other parts of the country. My hon. Friend the Member for Cities of London and Westminster (Mr. Tugendhat) said that he did not want this to set a precedent, but the very basis of the Private Bill procedure is that once a Clause sets a precedent it is open to any authority in any part of the country, no matter how haphazardly it may be adopted, to operate that Clause. It will have the effect not merely of wrecking the market for coal, which has a very high sulphur content, but of wrecking the market for oil, which has a limited capacity in the United Kingdom.
I pay tribute to the City of London for several innovations. It preceded the Clean Air Act of 1956, a contribution for which I must give it full marks. It has also put forward such suggestions as pedestrian islands and the police have made a very good contribution. That is where I must part company, because I feel that this is a piece of window-dressing.

I do not intend to obstruct the passage of the Bill. It must have a Second Reading, but it is only right that I should explain that while I am an ardent conservationist I think the City is going about this in the wrong way.
The Bill singles out an area which is too small for practical purposes. It is one square mile, which is a very small space when dealing with a gas like sulphur dioxide. If we compare it with New York, where they have a limit in force over 365 square miles, it can be seen that the scheme can be operated rather sensibly on a rational basis. I would have hoped to have extended it to the Greater London area.
If we look at foreign countries, in the Federal Republic, there is a sulphur limitation on fuel oil of 1·8 per cent. in the Ruhr; 2 per cent. in Frankfurt; in France, the sulphur limitation on petroleum products is 2 per cent. in Paris, and has been since 1964. It is to operate at Lyon and Marseilles at a later date. In Italy there is a sulphur limitation on fuel oil of 1·1 per cent., but in the large cities such as Milan it is doubtful that it could be enforced.
In Sweden, sulphur limitation on petroleum products is nation-wide at 2·5 per cent. This applies to Stockholm and Gothenburg. It is noticeable in other countries that it applies to cities and not merely to integral parts of cities. The City of London is an integral part of London. It is too small to be workable, if one compares it with New York, which has 365 square miles. It is a pity that a fault has been made here.
Another basic fault is assuming that a curtain can be placed around the City of London. This gas will drift according to the vagaries of the weather. It will come downstream or, in fog, it will accumulate, and by its own force it will drift in certain areas and thus cause problems. Therefore, it is necessary to go well beyond the City of London if one is effectively to control it.
To look at the problem from its basis, the research and intelligence department of the G.L.C. indicated the following figures on 26th March, 1970. In the City of London there were 369 micrograms of sulphur per cubic metre of air. In Lambeth the figure was 346. In Westminster, which is the other part of


my hon. Friend's constituency, the figure was 306. This problem derives largely from oil. Sixty per cent. is from oil, but my calculations are that coal's responsibility is about 3 per cent.; yet coal is brought into the Bill.
There have been negotiations on this matter. I had a most cordial lunch with the City of London and I tried to persuade the Corporation to eliminate all references to coal, because while coal may be responsible for creating difficulties in other parts of the country, certainly it is not at fault in the City of London. The figures compare very favourably with those given by the National Society for Clean Air at a conference on the 24th October, 1969, in that the summer average in the City of London was 310 micrograms per cubic metre of air and in the winter it rose to 490. These are well below the figures where one had a higher ratio of concentration in the London smog of 1952. In 1952 the figure went as high as 3,830 micrograms and in 1962 the figure went to 5,660.
But one has to put the whole thing in proportion here. The City of London is endeavouring to do this for one square mile. But there are other cities, large conglomerations of population such as Birmingham, Manchester and Bristol, which require legislation of particular significance to deal with their problems.
One would have thought that the Government should have introduced comprehensive legislation to deal with this problem, especially if it is not already provided for by the Clean Air Acts of 1956 and 1968.
To give a further indication of the way that sulphur dioxide can drift, I mention the Bankside power station, which is just to the south of the river, where there is a 300 megawatt station operating. Through a gas-washing plant it removes 95·5 per cent. of the sulphur. But what is important is the amount of sulphur which is emitted into the atmosphere. That plant emits 24,627 cubic feet of sulphur dioxide per day.

Mr. Arthur Lewis: Battersea?

Mr. Skeet: Bankside, which has a scrubber. That figure is based on the consumption of fuel oil with a 2·6 per cent. sulphur content. That represents

359 tons per annum; in other words, to travel over the City of London there is available from this source a quantity of sulphur dioxide gas equivalent to a large number of commercial furnaces operating in the City, and this source is situated on the City boundary.
The washing facilities which have been provided in compliance with technical innovations and improvements have done a remarkable job since they were instituted by the G.L.C., and that body must be congratulated on what it has done. Unfortunately, washing facilities cause an inversion, that is, the plume is wet, and while there is a flue velocity, it tends to move down in a foggy patch. The result is that when we have a fog, the accumulation of sulphur dioxide can, in mild conditions, go right across into the City of London.
The hon. Gentleman referred to the Battersea power station. That is operated not on oil but on coal. They had a scrubbing plant there, but it has been suspended for the last two years. I should have thought that, in dealing with this matter, the most sensible way would have been to provide a Clause in the Greater London Council (General Powers) (No. 2) Bill, which has had a Second Reading, that would have provided for all the surrounding boroughs, such as Tower Hamlets, Southwark and others, and Westminster. It could have been put in that Bill. That would have been in line with international precedent. It could have prevented drifting. The Clause could have been remodelled and then I should have given the authors of the Clause full marks for what they had done. It would have been full and effective. Going through the Clause in the Greater London Council Bill, I find no reference to anything of this nature.

Mr. Arthur Lewis: The hon. Gentleman may or may not be right in his opinions, but the City of London surely cannot be held responsible for what the G.L.C. may or may not have put in its Bill. The City cannot be bound by the G.L.C. Bill. Lastly, if that Clause were needed, the hon. Gentleman, and myself, perhaps, or anyone else, should have seen that it was put in. One cannot blame the City of London because we failed in our job or the G.L.C. failed in getting it in its Bill.

Mr. Skeet: I concede that the City of London cannot be responsible for the other Bills. But the City of London is responsible for the ineffectiveness of its own piece of legislation, when it is dealing with sulphur dioxide, which is a gas subject to the vagaries of the atmosphere. One square mile is a minute area.

Mr. Tugendhat: I appreciate that there are difficulties in that the City of London is a small area surrounded by a large area. Sulphur is heavy in the air and, therefore, when sulphur is in the air, concentrations are not readily dispersed. Therefore, if the City can create an oasis of clean air in the middle, which would bring about substantial improvement, that would be better for the other areas.

Mr. Skeet: I cannot concede that point because the wind blows sulphur dioxide about. There are tall buildings in the City and elsewhere. Most of the City has been rebuilt. Where there are tall buildings there is no reason why, but for the Bill, we should not resort to high flues and flue velocity to get rid of it at some height. Where we have scrubbing in the power station to which I have referred, we have a plume and inversion, which brings it down to ground level. In other parts outside the City of London, with domestic fires, it is at low level already and would move about at that level.
I have referred to the Greater London Council Bill. It is unique that there has been no City of Westminster Bill for three years and no provision here, although one has to bear in mind that this is a matter of public concern. I emphasise that. It is a matter of great concern for the Government of the day. If the Government want to get rid of this rather injurious sulphur dioxide, I will concede the case without arguing it, although the scientists are a little divided on this point.
In the Palace of Westminster there is a sulphur content of 2·4 per cent. which is burnt. In St. Thomas's Hospital over the river it is 3 per cent. to 4 per cent. No attempt has been made to deal with these, but they provide sulphur in the atmosphere which will sweep into the City of London. I quote these examples in an attempt to emphasise that to deal with this matter in a piecemeal manner is totally ineffective. It would have been much better to have left this until later.
I cannot possibly oppose every Bill which is introduced. I must take a stand on one. I did not take a stand on the Greater London Council Bill because I had already entered an objection to this Bill where I could make my case.
The Private Bill procedure is unique. Once a Clause has been laid down and has been accepted as a precedent, when local authorities are mediating what Clauses to put into their Bills they will pick on Clauses which have already received the approval of the House, whether on Second Reading or in Committee. This Clause, if passed in this form or in a modified form, would be accepted with alacrity by many county councils and other bodies. This proliferation of Clauses could be particularly dangerous to the coal industry: it could knock its production. It could also have serious effects for the oil industry, which will not be able to obtain the necessary supplies of low sulphur oil.
I turn to consider the impact of such a Clause moving elsewhere on the coal industry. The City of London used only 5,625 tons of coal last year compared with 120,000 tons of oil, which was equal to 200,000 tons of coal equivalent. It is interesting to observe that the Bill in its original draft did not include any reference to coal; this reference was inserted later. I went to the City of London and asked whether, if coal were responsible for only 3 per cent., it would not be advisable to leave it out altogether, because it was not the culprit and could justifiably be dropped.
The National Coal Board has given an undertaking to the City of London that it is prepared to comply with the specification if it is practicable to do so and that it will not be necessary to have any legislation. However, unfortunately we have reached the position where we are debating this matter and what comes of it will have to be decided elsewhere.
Clause 3(9)(b) is quite a stiff provision. It defines "sulphurous fuel" as a fuel where the sulphur exceeds 1·5 per cent. of the weight of the fuel. The rather vague expression "sulphur compounds" is used. I should have thought that coal itself is a compound of sulphur and other elements. The expression "sulphur compounds" is meaningless to me. If this expression is to remain, it will be unlawful even to strike a match in the City of


London because the content of a match head exceeds 1·25 per cent. by weight of sulphur. However, I shall take no point on that.
The figure of 1·25 per cent. is in excess of the availability of low sulphur coals. In the United Kingdom the sulphur content by weight of coal varies between 0·5 per cent. and 3·5 per cent. with an average of 1·6 per cent. However, these coals are found in locations such as Scotland and Wales which are remote from the market.
Availability is not the only problem. To comply with the standard which the City of London is setting, the National Coal Board would be required to impose a control limit of 0·9 per cent. to reach a specification of 1·25 per cent. This is because the sulphur content varies seam by seam and pit by pit. It would impose an intolerable burden on the industry if the Clause were to be repeated in other parts of the country. I hope to receive from the Minister an undertaking that the City of London will be regarded as a unique place and it is not intended that the Clause should have availability elsewhere.
There is a patent unfairness vis-à-vis the oil industry, because if oil is set at 1 per cent. on a calorific value basis coal should be set at 0·66 per cent. and not at 1·25 per cent. In other words, the Clause has not been thought out and it seeks to do in a limited area that which could be done in a greater area but which it would be impracticable to do at present.
I do not want to take too many Committee points. I shall refer to these points only very briefly. Although the whole scheme is to come into operation in 1987 for new furnaces, the provision in Clause 3(2)(a)
the renewal or replacement of a burner or other device used for, or in connection with, the heating of a furnace shall be taken as the installation of a furnace
will mean that the slightest adaptation will bring an old furnace within the full implementation of the Clause.

Mr. Tugendhat: The City of London has issued a public document pointing out that this is a point on which it proposes to introduce an amendment. My hon. Friend will find that this point is met.

Mr. Skeet: This just bears out my point that that this whole matter has been ill thought out. However, I am delighted that improvements are on the way. Clause 3(4)(b) provides a defence if "suitable fuel was unobtainable". This could be considerably improved upon by making use of a general provision taken from Section 16 of the Clean Air Act, 1956, which says:
in the case of smoke emitted from a chimney, it shall be a defence for the defendant to prove that the best practicable means had been employed to prevent the nuisance.
This would be a general Clause and it would be cumulative of the earlier Clauses. Or use could be made of Section 6(4)(d) of the 1968 Act—
any other matters requiring consideration in the circumstances.
Provision should be made for a third party defence so as to cover the case of the National Coal Board having supplied coal to a company and existing resources being used up before a piece of equipment is declared illegal.
Another thing that perturbs me is that reading Clause 3(1) with Clause 3(9) it is clear that no allowance is made for any improvements which may ocur in technology over the years. If the sulphur content in oil exceeds 1 per cent. and that in coal exceeds 1·25 per cent. high chimneys cannot be employed. No schemes such as the injection of limestone and dolomite into boilers, which would be available under modern methods, can be employed: that would be contravening existing legislation. This is another matter which needs clearing up.
It is well known, and it is provided for in the 1956 and 1968 Acts, that one of the best methods for getting rid of sulphur dioxide is to force it through a fairly high chimney at great velocity, throwing it out to a considerable height so that it will drift away in the wind. The House has already provided for this in legislation, but it would not be available in respect of any plant in the City of London because it has been negatived by those two Clauses in conjunction.
One has to consider two factors in relation to the effect on the oil industry if this principle were to be repeated elsewhere in the country through Clauses in other private legislation. One is the availability of oil of low sulphur content. We derive most of our oil from


the Middle East, and some of it from North Africa. Political difficulties have supervened in Africa, and in Nigeria the situation has not improved. I readily admit that the sulphur content there is right down to zero or only as little as 0·25 per cent. by weight, but 55 per cent. of oil from the Middle East has a sulphur content over 2 per cent. and 45 per cent. of it has between 1 and 2 per cent. sulphur content. The little we derive from South America has, for the most part, a sulphur content of 2 per cent. The demand for low sulphur crude is extremely high, but world availability is small. I am particularly concerned, therefore, lest provisions of this kind should be copied elsewhere.
Morever, there is a limited amount of hydrofining capacity in the United Kingdom. It is limited to about 225,000 barrels a day, which is about 10 per cent. of that in Europe. Although the oil companies and the National Coal Board could probably deal adequately with the City of London, they certainly could not deal with similar cases elsewhere, so this, too, is a matter to be carefully considered.
Further, on the subject of oil, while many of the systems devised over the years—alkalised alumina, catalytic conversion, and so on—have been useful in removing sulphur from flue gases for power stations, such methods would not be applicable in the City of London. I concede that. However, one would have thought that modern technological methods would be available for dealing with it in commercial furnaces but, if the Clause goes through in its present form, it will make it impracticable for any company to use an oil or a coal with a sulphur content higher than that laid down. Also, the Clause would knock out completely any resort to vortometric furnaces such as are now being brought into use in Canada and the United States.
Our national legislation today is wholly insufficient. The Clean Air Acts of 1956 and 1968 do not deal with sulphur dioxide except by reference to high chimneys through which it is eliminated. The 1968 Act refers to fumes, but this is not intended to apply to sulphur dioxide.
I strongly urge, therefore, that an early opportunity be taken to pass amending

legislation which would bring our national legislation up to date. We all agree that sulphur dioxide can be injurious. I hope to hear from my hon. Friend the Under-Secretary of State that, within two years he will be able to bring national legislation before us. In that event, of course, the relevant provisions in this Bill would be inoperative.
Why do I say that it is not necessary to have these powers at all? The City of London is quite capable of deciding, by its planning procedures, what it wants in regard to new furnaces. I quote here from "An Examination of Sulphur Dioxide as an Air Pollutant", a Report issued by the Technical Committee of the National Society for Clean Air. This is an explanatory note to the Committee from the City itself, and it shows that the City of London has effective control:
When a new building has been the subject of a planning approval, the City Architect, in his report to the Improvements and Town Planning Committee, recommends that the applicant be informed in suitable terms of his obligations under the Clean Air Act, 1956 and under the Corporation's Various Powers Act, 1954, with particular reference to smoke abatement.
Compliance with this planning permission results in information being forwarded to the City Engineer in accordance with the Clean Air Act, Section 3(3), which requires that a furnace shall not be installed in a building unless notice of the proposal to install has been given to the Local Authority. On receipt of this information, the applicant is advised that this has been noted, and at the same time, if in connection with such installation an unauthorised fuel is to be used, then his attention is drawn to the provisions of the Corporation's smokeless zone legislation.
If the House will bear with me, two more paragraphs are significant:
If as a result of this communication the applicant desires to use oil, he is informed of the procedure under which Conditional Approval is given by the Corporation provided the viscosity of the oil to be used does not exceed 220 secs.
From the above it will be seen that the Corporation relies on the applicant complying with the planning permission to notify the Corporation of the type of installation to be used, and on his reaction when oil is the proposed fuel to the non-obligatory condition of approval which can be obtained if a light oil is used. Experience has shown that where a heavier oil has been first proposed, the suggestion that a lighter oil be adopted has usually been accepted, although there are cases where no further approach has been made in this regard; and one case where notification was received that a heavier oil was still to be used, without of course protection by way of conditional approval.


It is clear, therefore, that the City of London has all the power it wants through its own planning procedures. It can say, "Unless you subscribe to what we lay down, you must not install the plant you have in mind". Why, therefore, must the City bring forward this long and complicated Clause, which is not in correct drafting form anyway, I consider, in order to achieve something which it already has?
Now, the question of old furnaces. These will be available, unless modifications have been made to them, until 1987. But one would expect that, well before then, new comprehensive legislation will be available which will make the City of London's Bill wholly inoperative. One has in mind all the time, also, that it covers only one square mile. The hon. Member for West Ham, North thought that, perhaps, it might be done on a broader canvass and it could be more successful.

Mr. Arthur Lewis: The hon. Gentleman will not wish to misquote me. I explained that the City of London cannot go beyond its own square mile. In these circumstances, why should we prevent it from doing what it knows to be necessary?

Mr. Skeet: It can occasionally be greater wisdom to try to persuade higher authority that something should be done. To take the hon. Gentleman's argument to its logical conclusion, one could say that it would be right to establish a precedent on a quarter of an acre, in relation to a single plant, but that would be absurd. Greater benefit is derived from accumulated wisdom directed to finding the optimum size or scale at which to work and then trying to persuade the authorities. I am seeking to persuade the Minister today that this is an urgent matter for public legislation. We should get on with it and clean our atmosphere. I am quite prepared to give the City of London credit for having come forward with a Clause, though one quite ineffectual for the purposes which I have in mind. There is no harm in its starting it. If the City wants a bouquet I am prepared to grant it, ineffectual as the provision may be. But I must stress the other side of the story.

Mr. Arthur Lewis: It is not a national provision.

Mr. Skeet: The hon. Gentleman misses the point. If it is accepted in this form, or a modified form, it will be open to parliamentary agents to have such a Clause adopted in all parts of the country. Do hon. Members see the effect of this on the mining industry, which could not meet the specification? To meet the specification of 1·25 per cent. laid down in the Clause it would have to have available in various parts a sulphur content in its coal of 0·9 per cent. The availability of such coal is distinctly limited. The industry would have to bring it from Scotland or Wales.
In the future science may be able to build a furnace where high-sulphur coals and perhaps oils can be burned, but the Clause would not permit that. Such technical possibilities are specifically ruled out by subsection (1).
Another reason why I think that the Clause is unnecessary is that there is already provision under Part III of the Public Health Act, 1936 to deal with the matter.
But perhaps an even more compelling point is that all fuel producers in the United Kingdom, I understand, are and have been prepared to co-operate voluntarily with the City of London, and the objections could have been resolved. The City could have achieved all its purposes by simply obtaining the voluntary understanding and acceptance of the coal industry and the oil companies. On that basis it would not have had to wait until 1987 but could have started operating the provision tomorrow.
It is most extraordinary that the City wants the Clause in print. If an undertaking has been given by one industry, to my knowledge, and possibly by the other, that it is prepared to assist the City in 1971, and if the City lays down provision in its own legislation for 1987, but wants to achieve the goal earlier, as we all assume it does, will it not willingly accept the voluntary undertaking? Why insist on the letter of the law, and that the provision should go into a Clause?
If clean air is required, as I accept, then it may be that the victory is secured, because natural gas will flood into almost every corner of the City, particularly after the settlement in Teheran and the difficulties being experienced by the oil companies in Tripoli.
I can only state the reasons for the anxieties shared by many outside the House. I want to see action by the House on the problem of sulphur dioxide. It is some years since we have had legislation dealing with it. The Alkali Inspectorate will deal with it in industry, but not in commercial premises.
Therefore, I ask my hon. Friend the Minister to give an assurance that the Clause will be considered unique to the City of London and will not be recommended for acceptance in all parts of the country, where it could do great damage to the market for coal and lead to great problems. It could lead to great problems for the miners over their concessionary coal, for example, and it would be beyond the capacity of the oil industry to provide the necessary low-sulphur fuels which would be required to comply with all the local Bills. Such an assurance would go a long way to deal with these matters, provided certain modifications are made to the Clause in the Bill before us.
General legislation is urgently needed to schedule special areas of optimum size, to avoid our approaching the problem piecemeal. We should develop the policy of overseas countries, which is to work out the best size of area in which to deal with sulphur dioxide, bearing in mind that it is a gas and will drift with the prevailing winds.
I also recommend that the sulphur dioxide research and development programme which has been very successfully carried on by the Warren Spring Research Laboratory and the Institute of Geological Sciences be further extended and accelerated. I hope that substantial moneys will be accorded to them for these purposes.
The Clean Air Act, 1968 is in urgent need of revision. The word "fumes" there, which has been defined as meaning any airborne solid matter smaller than dust, which obviously does not cover sulphur dioxide, should be redefined to include sulphur dioxide. Then we may have a situation in which we are dealing with the problem in a practical way, and not the rather extraordinary way that we find in the Bill.
I have covered a few of the points and paid tribute to the City for having initiated an idea, but I have pointed out

the difficulty that it probably has not considered. It is naturally concerned with its one square mile. We in the House must consider the rest of the country and the effect of such legislation on it. The United Kingdom has a high-sulphur coal, and oil coming from abroad is inclined to be sulphurous. Something practical must be done to deal with the problem by adopting the course I have suggested. We should treat the City of London as a special case. It is entitled to its Clause, and to its kudos. I hope that we shall meet in the centre, but if no assurance is given, and we find that we are faced with similar legislation elsewhere, there could be a very calamitous effect on both the coal and oil industries.
I have mineral interests, but not fuel interests, and therefore I do not consider that I must declare them.

7.58 p.m.

The Under-Secretary of State for the Environment (Mr. Eldon Griffiths): I should begin by underlining that we are discussing a Private Bill. My role in intervening in the debate is simply to indicate the Government's attitude to one or two aspects of the Bill.
I must tell my hon. Friend the Member for Bedford (Mr. Skeet), who has spoken with great knowledge, that it is for the promoters of the Bill to convince the House of the need for it, and it is for them to meet the arguments he has put this evening. I take note on the Government's behalf of the matters he has put to me, but our debate must be confined to the terms of this Private Bill. It is very wide-ranging, not to say miscellaneous It ranges all the way from the regulation of horse riding in Epping Forest to refuse and litter bins in the streets and the notification of food poisoning to the port health authorities. My right hon. Friends the Secretary of State for the Environment and the Secretary of State for Trade and Industry will, of course, be submitting their reports to the House on the Bill.
For my part now, I merely want to mention three aspects. Clause 10 concerns the ponies in Epping Forest. Naturally, my Department is very much in favour of all measures which will preserve this splendid area of green space which the City of London, through its great


generosity over the ages, has made available to large numbers of people. I was particularly glad that the hon. Member for West Ham, North (Mr. Arthur Lewis) spoke as he did about the horses. Having myself some special responsibility for sport and recreation, I, too, am glad that the Bill makes provisison for the protection of horse riding in the forest.
But it is, of course, Clause 3, which deals with sulphur gases, which has concerned the House. The Government are very conscious of the importance of clean air. It is fundamental to our very existence and my Department is determined that the progress, which has been considerable in this country in cleaning up our air, shall be maintained.
Our country has an excellent record in clean air, particlarly over the last 15 years. Nearly 4¾ million premises are now covered by smoke control orders. Over half of the so-called "black areas", where air pollution is worst, are now covered, and the average smoke concentrations in urban areas have gone down by 60 per cent. over the last 15 years. The benefits we have in more sunshine, cleaner buildings, better visibility and the end of the old pea soup fogs, to which the hon. Member for West Ham, North referred, are matters of common knowledge to everyone living in our great cities.
Nor are the emissions from industrial premises being neglected. The control which is exercised by the Alkali Inspectorate—an excellent body of people who do a first-class job—is ensuring that the best practicable means are used to minimise air pollution, and the co-operation that the Inspectorate gets from industrialists is, I think, the envy of many other countries. Therefore, I found it in no way surprising, though still gratifying, that the Royal Commission on Environmental Pollution, in its first Report, said that since the Clean Air Act became law in 1956 there has been a steady reduction in the emission of smoke and sulphur dioxide into the air over Britain. This has been achieved despite a 10 per cent. increase in population and a 17 per cent. increase in annual gross energy consumption. That is why, in Central London, as the Royal Commission went on to report, winter sunshine, as we are experiencing it this week, has increased by some 50 per cent.
So we have made much enviable progress in this country in the cause of clean air. But my hon. Friend the Member for Bedford and others are quite right in saying that, now that we have overcome the grossest forms of air pollution, it is time we turned perhaps more attention to the less gross but still unpleasant forms of pollution—one of which, sulphur dioxide, is the subject of Clause 3. Sulphur dioxide does have a corrosive effect on materials, which causes great damage. It is unpleasant, and no one would deny it. But I must say to my hon. Friend the Member for Bedford that, knowledgeable, indeed learned, as his speech was, he worried me once or twice in that he had the problem of sulphur dioxide rather out of perspective. I am sure that that was not his intention, and I do not think he created anything of a scare—I am sure that would not be his wish. But I must tell him that, in the concentrations in which sulphur dioxide is normally present in the air in this country, it does not present an amenity or health problem. I believe that I am right in saying that about one-third of the sulphur dioxide in the air we breathe comes from the sea and does not arise from industrial processes.
Concentrations of sulphur dioxide in this country are going down steadily. They have reduced by about one-third on average in urban areas over the last ten years. Nevertheless, of course, no one in his senses would deny that there are some areas where there tend to be higher concentrations of SO, and of course inner London, including the City, is one of them.
As my hon. Friend the Member for the Cities of London and Westminster (Mr. Tugendhat) said in his engaging and compelling speech, the inner London situation is in some respects unique, because while the situation in the country as a whole is improving, in inner London the sulphur dioxide situation is not. Indeed, in some respects, relatively if not absolutely, it is getting worse. For example, ten years ago, only 12 of the 28 sites of highest pollution were in inner London. But today. 19 out of the worst 23 sites are in central London and there is no region in the country which has a higher average concentration.
My hon. Friend mentioned the reasons for this—the very large concentration of


office buildings using oil-fired central heating; the fact that, whereas in industrial areas the clean air policy has been successful in mitigating these problems—for example, very high chimneys—in the City many chimneys are masked by taller buildings; and the particular configuration of the streets, or "canyons", as some might call them, where it may be that sulphur gas tends to gather in pockets and is not so easily dispersed by air currents.
It is sometimes suggested also that the large concentration of motor vehicles adds to this problem, but here again I think we need to get a sense of perspective. Before blaming the car exhaust, it is necessary to judge it in comparison with other sources of sulphur dioxide emissions. The other day, the Institute of Petroleum did a mock-up of the emissions of sulphur dioxide in a typical medium-sized town. It discovered that domestic heating emissions would be responsible for about 2,000 tons per annum of these emissions, that emissions from the generation of electrical power would add a further 2,000 tons, and that all the motor vehicles in the town would be responsible for only 50 tons. I think that that sets the matter in some perspective.
All of us agree on the desirability of seeing that these sulphur dioxide concentrations in central London fall much further and very much more quickly, and I think that we must, therefore, see this Bill as a proposal for what should be an interesting experiment. The Government's view is that it is a proposal for what could be an interesting experiment. But I must say—and here I am in company with my hon. Friend the Member for Bedford—that there are a number of questions of general policy and of economics which any Government would have to take into account in considering the proposals in the Bill.
The kind of fuel used in the City of London is of no real significance, or at least of no real proportionate significance in itself. But it must be recognised, as my hon. Friend suggests, that other authorities might well seek to follow the City's lead. What if they do? From the clean air point of view, one might well rejoice, but I am bound to put to the promoters of the Bill one or two

questions which I hope they will feel able to discuss in Committee—for the Government wish and hope that the House will give the Bill its Second Reading.
Suppose the lead of the City of London were, sooner or later, to be applied nationally. In that case, would the limit of 1·25 per cent. sulphur content for solid fuel set by the Bill do damage to the market for coal, much of which has a natural sulphur content far in excess of 1·25 per cent.? If so, how much damage would it do? For example, how many pits might it close and what would be the addition to our import bill? I put these questions in an interrogatory fashion because they are the kinds of consideration which any Government must have in mind when faced with proposals of this kind.
Similarly, can the 1 per cent. limit proposed for sulphur in oils be met in practice by our oil industry? Imported crude oil from the Middle East has a much higher natural sulphur content than the figure allowed for in the Bill, and acceptable limits are being achieved only by the device of blending Middle East crude with low sulphur oils from Nigeria and Libya.
The widespread adoption of the City's criteria would mean either a swing to greater quantities of imported, acceptably low sulphur content crude oil from, for example, Libya—and it is by no means certain that we would get it—or the needs of one part of the country being met only by reducing the rate of blending and the burning of more sulphurous fuel in other parts of the country. In other words, there is a danger of assisting one part of the country—perhaps the square mile of the City of London—leaving other parts in difficulty. I hope that in Committee the promoters of the Bill will feel able to deal with this, among other points.
As drafted, the Bill concentrates entirely on the sulphur content of the fuel and makes no concession to other means of reducing sulphur values, for example, by some form of washing or acceptable measures of control by means of high chimneys.

Mr. Skeet: Would not my hon. Friend construe the relevant Clause as meaning that even though technical experience


may evolve a furnace which is vastly improved and capable of accepting for burning a fuel with a high sulphur content, such a furnace would be precluded from using such a fuel?

Mr. Griffiths: It is not for me to construe that provision. The Government must indicate some of the questions that have been thrown up by these considerations. I put them in the hope that they, including other questions such as that which my hon. Friend has just raised, will be considered in Committee, for it is our hope that the Bill will receive a Second Reading.
The Bill stems from the local circumstances which obtain in the City. These circumstances are, in a word, unique. The proposed sulphur level for oil relates to the growing use of gas oil, which has a low sulphur content, in the City. More of this type of fuel is used in this area. Nor is it likely that the City will become a place where heavy fuel, oil with a high sulphur content, will be found to be an attractive fuel.
However, if these provisions were extended to other areas, there is little doubt that they could place heavy additional charges on consumers, both directly and through adding to the cost of electricity generation. In short, the Bill makes sense in terms of the circumstances in the City, and the Government recognise the special features of the pattern of fuel consumption in the City and the special pollution problems which the City appears to face.
Were it not for these special features, the Bill might be held to set an impracticable and, therefore, unacceptable precedent for other areas. In these circumstances and speaking for a Government who place the need for clean air very high on their list of priorities, I recommend that the Bill be given a Second Reading so that it may be sent into Committee where all the issues involved can be examined in greater detail than is possible tonight and with the benefit of expert evidence. As I said, my right hon. Friends the Secretaries of State for the Environment and Trade and Industry will, in due course, be making a report to the Committee.

8.15 p.m.

Mr. Nigel Spearing: I wish to raise some questions on Clause 12 which

relates to Tower Bridge. My interest in this matter comes from my being vice-chairman of the River Thames Society, whose past president, Roger Gresham Cooke, the late Member for Twickenham, often spoke on Thames affairs.
The City of London is responsible for those bridges within its bounds and just outside, whereas the Greater London Council is responsible for the rest. I do not think anyone would wish to oppose Clause 12, either here or in Committee, but, like the Minister, there are a number of questions which I will ask so that they may be considered between now and the Committee Stage.
In 1885, when Tower Bridge was opened, there was great controversy about the rights of navigation as they then existed in the Upper Pool, and great restrictions were placed on the builders of the bridge, both while it was under construction and subsequently. I understand that those restrictions pertain to this day.
These restrictions give absolute right of passage to the river highway. Any craft requiring the bridge to be opened can do so irrespective of the inconvenience that that may cause to road traffic, and the City Corporation is required to place a tug on constant watch by the bridge to ensure that no craft, however propelled, is in danger at that point.
The Clause seeks to change that situation by saying that not less than 24 hours' notice must be given if passage through Tower Bridge is required, and that the arrival time should be
stated in the notice as the intended time of passage.
The need for this change will be readily appreciated. The Upper Pool—that part above Tower Bridge and on to London Bridge—has rapidly changed in the last few years and the demands on Tower Bridge are nothing like what they once were. It is expensive for the City Corporation to keep a full watch at this point and to keep the bridge fully manned throughout the 24 hours—on Sundays, weekends and Christmas Days—in case a vessel may wish to pass through.
The proposed change will alter the legal obligation in respect of this right of way. Instead of giving the right of way to the river highway, it will be given to road traffic. Nobody will question


the need for a change in this respect. Whether 24 hours is the right amount of notice that should be given is a matter which the promoters of the Bill will no doubt wish to explain in Committee and to state if it has been agreed among all the interests involved.
There is a secondary consideration, relating to the maintenance of machinery. Clause 12(1)(b) requires the City
Corporation … to … provide and maintain such machinery for opening the Tower Bridge as may be required for compliance with that section and subsection (1)(a) of section 12 (Tower Bridge) of the City of London (Various Powers) (No. 2) Act 1971.
In other words, the machinery must be there to open the bridge, given 24 hours' notice.
I am not sure about the future. Indeed, nobody can be sure as to the future of this part of the river. While this may be a reasonable requirement now, if in the future—there are powers for variation to which I will come later—this time of 24 hours should be reduced, all sorts of difficulties may arise. Further, one must take into account the future of the bridge machinery. Many people find great fascination in this machinery of the last century. Indeed, eventually it might not be found possible to open Tower Bridge, given even 24 hours' notice.
The Pool of London is historic for our City and for the nation. It may be that in future, with a new land use round the river, cruising vessels and vessels of other sorts will wish to visit London. But if the machinery installed or modified can only take account of this 24-hour Clause there may be some difficulty. That question can perhaps be looked at in Committee.
Secondly, I wish to deal with subsection (1,c) of Clause 12. Power is given for the subsection to be varied by Statutory Instrument on application by
the Corporation, or of any person appearing to the Secretary of State to be affected by the provisions …".
In other words, the 24-hour period can be changed. But it does not state whether the interests of such persons are concerned with navigation or with road traffic. It might be advisable to state specifically whether the
persons appearing to the Secretary of State

should be confined to those concerned with navigation or to those concerned with road traffic. In view of the situation of Tower Bridge, it might be advisable to provide that the provision concerns only persons affected by navigation.
I hope that the Committee will consider these points. It is not any wish of mine to oppose the Clause or the Bill, but due to the national interest in Tower Bridge and its possible international significance and the fact that we would wish to preserve its interesting mechanism and the bridge as a focal point of our City, these points should be raised before the Bill proceeds to Committee.

Question put and agreed to.

Bill accordingly read a Second time and committed.

BRISTOL CORPORATION BILL [Lords] (By Order)

Bill read a Second time and committed.

INCOME TAX ORDERS

Resolved,
That the Non-Residents' Transitional Relief from Income Tax on Dividends (Extension of Period) Order 1971, a draft of which was laid before this House on 26th February, be approved.—[Mr. Clegg.]

Resolved,
That the Transitional Relief for Interest and Royalties paid to Non-Residents (Extension of Period) Order 1971, a draft of which was laid before this House on 26th February, be approved.—[Mr. Patrick Jenkin.]

Resolved,
That an humble Address be presented to Her Majesty, praying that the Double Taxation Relief (Taxes on Income) (Faroe Islands) Order 1971, be made in the form of the draft laid before this House on 26th February.—[Mr. Patrick Jenkin.]

To be presented by Privy Councillors or Members of Her Majesty's Household.

8.23 p.m.

The Financial Secretary to the Treasury (Mr. Patrick Jenkin): I beg to move,
That an humble Address be presented to Her Majesty, praying that the Double Taxation Relief (Taxes on Income) (France) Order 1971, be made in the form of the draft laid before this House on 26th February.


It would be right to say a few words about the Order so that an explanation of it should be on the record.
The Order embodies a protocol amendment of the Double Taxation Convenvention with France and it provides that United Kingdom residents receiving dividends from French companies in which they have portfolio shareholdings will normally be entitled to receive a refund from the French Treasury of part of the French tax on the company profits out of which their dividends are paid. The refund is equivalent to the tax credit known as the avoir fiscal to which French shareholders in French companies are normally entitled.
When the main Convention was negotiated France did not make refunds of this sort to non-residents. The refunds were made to their own residents but not to investors from abroad. However, since then, the French Government have decided that foreign investors resident in countries which have a double taxation agreement with France may receive a cash payment in lieu of the avoir fiscal. I am sure that the House will think it right that we should take advantage of this offer on behalf of the United Kingdom investors.
I speak to the Order only because it is a very good example showing how an imputation system of corporation tax can work in the international environment when one is enabled to equate the position of a foreign investor with a domestic investor in a company operating within a territory which has an imputation tax system.
This agreement was negotiated by out predecessors, but, despite that, I willingly commend it to the House. If any hon. Member has any questions which he would like to raise, I should be happy to try to answer them.

8.26 p.m.

Mr. Joel Barnett (Heywood and Roy-ton): The Financial Secretary has spoken about the imputation system at which I only briefly glanced in the Green Paper. I do not know whether he was implying—and it was not clear from the speech of the Chancellor of the Exchequer today—that the Government definitely intend to bring it in regardless of what the Common Market decides to do.
The Van Den Tempel Report came down in favour of our present system. I do not know whether the Government intend to bring in either this system or some other system if the Common Market came down in favour of the Van Den Tempel system, which is ours.

Mr. Patrick Jenkin: If I may reply to the hon. Gentleman, it is interesting and significant that we should be debating this Order within two or three hours of my right hon. Friend the Chancellor having announced the proposal for the reform of corporation tax. It might be better to explore this question during the Budget debates. It does not arise directly out of the Order.
I think that we must wait and see to what extent the Common Market countries are prepared to accept the recommendations of the Van Den Tempel Report. This is one reason why my right hon. Friend suggested that it would not be right to legislate for company tax reform this year, but that we should wait until next year, by which time we imagine the situation will be somewhat clearer.

Question put and agreed to.

Resolved,
That an humble Address be presented to Her Majesty, praying that the Double Taxation Relief (Taxes on Income) (France) Order 1971, be made in the form of the draft laid before this House on 26th February.

To be presented by Privy Councillors or Members of Her Majesty's Household.

UNEMPLOYMENT BENEFIT (PART-TIME STUDENTS)

Motion made, and Question proposed, That this House do now adjourn.—[Mr. Clegg.]

8.28 p.m.

Mr. Arthur Blenkinsop: I am grateful for the opportunity so relatively early in the evening of raising a matter which is of considerable importance to my constituency. I hope that we shall be able to clear up the difficulties and confusion that have arisen about the payment of unemployment benefit to young people who are out of work and are also attending part-time courses at the Marine and Technical College in my constituency. The same problem arises elsewhere in the country.


This is no new problem but the present heavy unemployment in South Shields is highlighting it.
I wrote to the Secretary of State for Employment in January about this matter and the papers were passed to the Secretary of State for Social Services. The matter affects both Departments and possibly also the Department of Education and Science. I do not mind which of the three Departments provides a satisfactory solution.
South Shields is suffering particularly heavy unemployment which affects also Tyneside and Wearside. Although a large proportion of the unemployed are older people, unhappily, a considerable number of young people are also out of work. In my constituency 10 per cent. of the men are unemployed. There are about 140 boys on the register and some hundreds of adolescents up to the age of 20, the great majority of whom are not skilled. We should be doing everything we can to encourage them to improve their educational background, but the absurd position is that if these young lads sit on their bottoms at home and make no effort to get extra training, they will be entitled to unemployment benefit and, sometimes, to supplementary benefit. Yet those who show a keeness and desire to take a course at the Marine and Technical College to improve their general educational standards towards G.C.E. or on a part-time training basis receive unemployment benefit only after an interminable struggle. It is intolerable that this should happen.
Many facts have been elicited by the South Shields Trades Council, which has taken a particular interest in this subject, and they bring to light an extraordinary situation. For example, when a young lad who is taking a part-time day release course becomes redundant and goes to the employment exchange, he is likely to be told that if he loses his job he will also have to give up the course. Why should he have to do so? Some of these young workers should be entitled to receive unemployment benefit provided that the courses are part-time; they could still sign the register as being available for work, as indeed they are.
After a good deal of discussion and argument, we have managed to enable some of these young people to receive

benefit, but in other cases our arguments have not been accepted. Some young people have not a full contribution record because their period in work has been too short and have to apply for supplementary allowance. I have with me a form issued by the Department of Health and Social Security in which supplementary allowance is disallowed for one man on the grounds that he is alleged to be undergoing, which is a curious word to use, full-time education. I do not understand why they regard that course as full-time since the Ministry of Education and Science consider it to be a part-time course and so classify it.
There are endless disputes of this kind in my constituency about individual cases. However, in spite of these difficulties, the man in question is carrying on with the course and is being helped by his family, which is not particularly well off. We hear many stories about people who try to get benefit when they are not entitled to it. I wish that more attention were paid to enabling those keen enough to want to continue courses to do so and to improve their situation in life. It appears that the powers-that-be are against them and are trying to prevent them continuing courses of study. If this is the attitude, it is wrong. If a young man becomes unemployed when in midcourse, why should we not encourage him to continue? Should we not make it quite clear that they are entitled to their unemployment benefit or to the supplementary allowance?
While we have had very satisfactory discussions with the manager of the local employment exchange who has been extremely helpful in trying to work out those courses which could be accepted as clearly part-time, when cases are referred to the Department of Health and Social Security matters are not so easy. There appears to be no common line of agreement about them between the two Departments. Furthermore, there is no common line between one employment exchange and another. Young people living in nearby areas who seek to attend courses at the South Shields Marine Technical College find that their local employment exchanges disallow benefit which is allowed by the South Shields exchange. That is even true of exchanges as near as Jarrow. Applications for benefit have been rejected in Jarrow when, if


they had come to us in Shields, they would have been allowed under the arrangements which have now been reached. Clearly there is complete confusion between the two Ministries and, to put it mildly, the situation is most unsatisfactory.
We are determined to see that the matter is put right. I would not mind if it were said that unemployment benefit is not the right term to use and that a special grant should be provided to people who want to do this work. However, I do not see why they should be put to this kind of trouble just because they want to do some extra training, realising that there are deficiencies to make up and that they want a better chance. Surely we should encourage them.
I appeal to the Minister to say that he will try to clear up the confusion. I know of cases of people who have had to give up courses and sit at home, which is just foolish. I know of other cases of people who are carrying on with a good deal of hardship to their families. In one case, the father is out of work, but the family is trying to help the son carry on.
We must try to make it clear that these facilities are available. Most counter staffs in employment exchanges do not appear to know and are not able to offer much in the way of advice. Their general reaction is simply to tell people that if they are taking a course at the Marine Technical College they are automatically excluded from unemployment benefit. We know that that is not necessarily the position, but that is the impression.
I hope to hear from the Minister that there will be a real attempt to publicise the facilities that are available. In addition, I hope that steps will be taken to sort out individual cases. The Committee of Inquiry into Abuses of the Social Services is currently looking into the misuse of funds. In my opinion, its terms of reference should be extended to the investigation of cases where people do not get that to which they are entitled.
The Minister has a special responsibility under the Ministry of Social Security Act, 1966. Section 9(2) sets out his responsibility to define these courses and says:

The Minister may by regulations specify the circumstances in which a person is or is not to be treated for the purposes of this section as attending a school or receiving full-time instruction of a kind given in schools".
I invite him to use the powers given to him in that Section to make clear what are the courses available to young people which would still permit them to be entitled to receive unemployment benefit, accepting that their availability for work and their contribution record are also factors to be taken into account.
Many of us would be willing to help the Minister draw up a list of that kind. We have already done so locally in South Shields where it has been found possible to agree a list with local officers of the Department of Employment who understand and accept the position. We find it much more difficult to get the same acceptance from the hon. Gentleman's own local officers, although in my experience those officers in other matters have been as friendly and as helpful as officers in the Department of Employment.
I should be delighted if the Minister were able to say at once that he was prepared to give the necessary instructions to clear up all these difficulties, settling the matter on the spot. That would be the best of all. However, I should accept with rather less satisfaction his statement that the case had been made out, that clarification was needed, that the position should be made clear to young people. I hope that he will be able to make at least that statement and within a short time issue the necessary instructions to local branches of his Department so that people will not be put into the difficulties which now appear to exist.

8.48 p.m.

Mr. Ernest Armstrong: I congratulate my hon. Friend the Member for South Shields (Mr. Blenkinsop) on raising this matter which is an important issue in the North-East. Press comment and people with whom I have discussed the matter incline to the view that if the regulations prevent these youngsters from attending college and receiving the benefits of further education, the regulations should be altered.
When I qualified as a teacher, in 1937, my first job was on Tyneside at what was then known as a dole school where youngsters had to attend in order to qualify for the miserable benefit available in those days.
I am sure that the Minister will agree that anything which deters a youngster who is out of work not only from attending college or receiving instruction and improving his qualifications, but from being in touch with an institution which can help him to get over a very difficult and tragic period in his life when he cannot get work, should be looked at very closely and that, if possible, the reverse should be the situation: we should encourage him.
Youth employment in the Northern Region is a great problem. I should like to add my tribute to the officers in both Departments. They understand the problem and they are anxious to give every co-operation. It is stupid, when youngsters are prepared to give the time and their parents to give them encouragement to receive extra instruction, that we should deter them in any way.
In the Northern Region two matters are peculiar to young people. The first—I do not boast about it—is that we have the poorest record of any region for children staying on at school. There are many reasons. More of our children leave at the statutory age than in any other region not because they are less intelligent—far from it. As an ex-schoolmaster I can say that it is not because parents do not value education and training. They do. Indeed, as my hon. Friend pointed out, many parents make great sacrifices to give their children the opportunities which they think they should have. But, as well as so many early leavers, the North has more youngsters going into apprenticeships than anywhere else in the country. I suppose this is because of the tradition of heavy industry, and so on.
Secondly, many youngsters leave early because they become convinced that school is no longer relevant to the kind of employment they want to take or to their adult life. One of the reasons for the growth of what we call technical colleges and colleges of further education is that youngsters who left school and

tended to write themselves off far too early in life then see the value of courses at institutions of further education, at marine and technical colleges, and the like.
I ask the Minister to search for some way to ensure that these youngsters who are being encouraged to undertake this further training are not deterred by anything which we do as a Government, as a nation, or locally. Indeed, we should regard it is as our duty to encourage them. I vigorously support my hon. Friend's plea.

8.54 p.m.

Mr. Ted Leadbitter: My hon. Friend the Member for South Shields (Mr. Blenkinsop) has raised a very important issue. I have had a brief chat with the Under-Secretary; over the past many months when we have worked together in Standing Committee, I have been conscious of his personal attitude to these problems. It is encouraging to know that he wishes to help young people who are affected in this way.
I want to mention a matter of some concern. Very often, in a Motion or a Bill, the House indicates its intention, but we are later alarmed at the way in which it is put into effect. We should ask how our intentions towards these young people who are denied benefits can be administered. I am amazed how often our intentions do not fructify as the ordinary citizen would expect. I hope that the Under-Secretary will take heed of what my hon. Friend said. How can we translate our intentions administratively? There are many occasions for politics, but we in this House are primarily concerned with human beings.
We have the finest civil servants in the world—although they are often criticised—but they are part of a complex administrative system, and the translation of our intentions often militates against success. Some young people must be alarmed about their treatment. I hope that some of them will agree that those of us who are older than they are very much concerned about their job opportunities and training. We should be interested in how the State can help them.
I would not be in conflict with the Under-Secretary, because I know how he feels. The dilemma is administrative, not


political—it relates to the ability to test individual cases against general needs. Many constituents have said that they are trying to pursue a course of study but they need help from social security and for some reason do not qualify. When I have telephoned the officials they have been sympathetic but have said that they were bound by precedent.
How can the Government break through this administrative barrier? The politicians have to tell the administrators to carry our intentions through. I make no criticism of the fact that there are no hon. Members opposite, because we have had a hard day. We are talking here of young people embarking on courses of study who need to go to the State for help. Can we not deal with individual cases without calling on precedents?
Social security officers are frequently criticised, and unreasonably so. They are an example to us all for their patient dealing with the public. There are one or two individuals in the service who ought not to be there because they talk to people as if they were numbers. There are one or two who should be banished from the service because they are not in tune with modern thinking.
We must get across the intentions of the House, of reasonable hon. Members. There are no politics involved here; this is to do with our attitude to young people who wish to study and who have anxieties about living conditions. The situation is how to break through the administrative barrier. The Under-Secretary and I are old friends and have argued on many subjects over the years.
The Labour Government could have done much more on this matter, as could the Conservative Government before them. But we are in the present tense of "now". Let us not look back. Mistakes have been made politically. But we are talking of young people, the seed corn from which the nation will grow. Since we have no parliamentary political differences on this account, can the Under-Secretary say whether he will take the initiative administratively and tell his civil servants the intention of the House, and can we, therefore, treat these young people in the manner in which my hon. Friend the Member for South Shields has tried to put before the House?

9.6 p.m.

The Under-Secretary of State for Health and Social Security (Mr. Paul Dean): I am grateful to the hon. Member for South Shields (Mr. Blenkinsop) for raising this subject, and grateful also to the three hon. Gentlemen for the tributes which they have paid to the staff of my Department and the Department of Employment. It is the Department of Employment which administers the unemployment benefit agencies of my Department on our behalf.
The whole House would agree, and I do not for a moment contest it, that we want to encourage people, especially young people, to improve their qualifications. This is desirable for their future and for the future of the country as a whole. If there were to be any barriers in the way of that, I should be the first to agree with the hon. Gentleman that they should be removed. Unfortunately, things are never quite as easy as they look. But I can assure hon. Gentlemen right at the beginning that we are absolutely agreed on the fundamental objective here.
As time is not the enemy that it so often is on these evenings, may I try to simplify the position as I see it, without, I hope, misleading, and deal with the particular points which the three hon. Gentlemen have raised?
There are various ways in which these young people, or people generally for that matter, who wish to receive training, can be helped. The first and perhaps the most obvious way is the arrangements made by an employer with the local technical college, through sandwich courses or any other type of course which is available. Usually in these cases the employer pays the individual concerned; he probably pays the fees, and there may well be grants available to that employer. It may be done by the employer individually with a local college, or it may be done through the various industrial training arrangements that we have. I appreciate that these are not the types of people which the hon. Gentleman has mentioned.
The second category is people who are either unemployed or who become unemployed while they are on a course. These are the people who can get unemployment benefit if they satisfy the conditions. Perhaps I could remind the hon. Gentleman of the two conditions which exist for the receipt of unemployment


benefit. The first is the contribution condition. It is necessary for a claimant to have paid at least 26 employed person's contributions since he entered into insurance to be eligible for unemployment benefit. That is the first condition as the hon. Gentleman well knows. It is not an especially difficult one to meet in the case of anyone who has been in employment for some time, but it is a bar to some people who have been in employment for only a short time.
The second condition, which is the one with which we are most concerned in the debate, is what is known as the "availability" condition. Here a claimant must be available for work with an employer, which means that he must be ready and able to accept at once any offer of suitable employment or to apply for any suitable employment that is brought to his notice. Attendance at a training course naturally means that its effect on the availability of the claimant must be considered, and this decision is the responsibility of independent determining authorities appointed under the Act. Ministers cannot interfere with these decisions.
I emphasise that point, because it has been said that it would be highly desirable if we were to issue instructions to our local staff as to the way in which the availability condition under the National Insurance Acts should be administered. We are limited here, in that the interpretation of "availability" is decided, not by Ministers, but entirely by the independent authorities. I think that this is entirely right, otherwise we should be judge in our own cause and people who thought that they were improperly being denied benefit would not feel that they had a fair chance of stating their case.

Mr. Blenkinsop: Could not the Under-Secretary at least use the powers under the Act to which I referred to indicate the types of course which are nationally known and which it would appear, subject to other conditions, that someone could take without interfering with his unemployment benefit entitlement?

Mr. Dean: I was coming to that. I will certainly look at the point the hon. Gentleman made with a view to seeing whether more guidance can be given, particularly in the circumstances which

he has described arising in his constituency of South Shields and in the northern area generally.
I greatly hope that one of the results of the debate will be that, if there has been any confusion, by getting on the record how the scheme operates it will be easier in future to deal with the inevitably borderline cases which arise and which clearly we are anxious to bring within the Regulations if we possibly can.
I have said that it is the job of the independent authorities to interpret the law and the Regulations relating to the availability condition. I want to say a little more about the way in which the authorities have done this in the past. This explains why it is difficult for us to give precise instructions, because we must avoid trespassing on the function of the determining authorities.
It is because the decision whether the claimant is available for employment is reserved for the independent determining authorities that it is impossible to be definite about which type of claim will succeed. Each claim must be dealt with on its merits and it is possible only to sketch out the considerations which have to be taken into account by the determining authorities and which now form part of the Commissioners' case law.
Naturally a claimant is not available for employment if he is engaged in some activity for a substantial part of the day and cannot be contacted during that time or cannot or will not leave the activity to take up suitable employment. Where a claimant states that he is available for work, this would undoubtedly be taken into account, but it would not be accepted as proof of availability regardless of other circumstances. The independent authorities would have to consider whether the claimant left other employment to take up the training, whether the claimant had contracted to attend the training diligently and not abandon it before completion of the course, whether he had paid a premium or fee and, if so, how much, and whether such a fee was repayable if the student left the course. Other factors might well be how long the course of training will last and during what hours the training is given.
From what the hon. Gentleman said I think he is broadly satisfied that the employment exchanges and the determining authorities operate reasonably in


this regard. That is my information, too. I think the hon. Gentleman feels that the problem arises largely on the supplementary benefit side and not on the unemployment benefit side, but I thought it was as well to state in this rather complicated area the main conditions and how they are interpreted within the national insurance scheme by the determining authorities.

Mr. Blenkinsop: I accept that as being broadly true, but it appears from our experience that different exchanges are interpreting the matter in different ways, and it looks as though some further information is required here as well. But I agree that the main problem has been on the other side, the supplementary benefit and social security side.

Mr. Dean: Even here, where one is dealing with cases on the margin, it is almost inevitable that there will be slightly different interpretations, depending on the circumstances of the cases. Some may just fall within, and some without.
As regards supplementary benefits, the position is somewhat complicated. I shall try to break down the various categories, and I shall come in a few minutes to the heart of the problem which hon. Members have raised.
First, school children. I take this category first because some of the young people concerned come within it. Under Section 9(1) of the Ministry of Social Security Act, young persons who are attending school or receiving full-time instruction of a kind given in schools are excluded from receiving supplementary allowance in their own right unless there are exceptional circumstances which, in the opinion of the Supplementary Benefits Commission, would justify the payment of allowance. The effect of this provision is to make children dependent on their parents until their secondary education is completed. The exceptional circumstances provision is generally employed in cases in which for some reason—for example, where the school child is severely disabled or where the school child has dependants himself—it is unreasonable that the child should be maintained by his parents. It is not used where the difficulty is solely the financial circumstances of the parents, because local authorities have specific powers to help such parents.
As the young persons about whom the hon. Gentleman is concerned are attending technical college, they will be affected by Section 9(1) of the Act only if they are receiving full-time instruction of a kind given in schools, for example, G.C.E. "A" or "O" level courses. Most of the people concerned are taking part-time courses and would, therefore, be regarded by the Supplementary Benefits Commission as students rather than as school children.
I come now to students as such, narrowing the matter down more to the core of the problem. There is, first, the full-time student supported by some form of education grant. Generally speaking, this student is not available for work—he cannot fulfil the availability test—and, therefore, is not entitled to supplementary benefit; but, here again, this is not the category of person about whom we are primarily concerned here.
We are primarily concerned with the worker who becomes a student in order to occupy himself usefully and to improve his position while he is, unfortunately, unemployed or made redundant. The hon. Gentleman felt that it was in respect of this category that some confusion had arisen because of what he regarded as the differing interpretations in regard to unemployment benefit and supplementary benefit.
As I understand it, it is not so much that confusion has arisen but that, almost inevitably, slightly differing regulations may appear contradictory when one case on the borderline is compared with another and one decision seems to go the other way. It is largely that, I think, but the fact that the hon. Gentleman has drawn our attention to a number of individual cases will help to sort this matter out and help us to see that we give the maximum help to these people.
There is one case in particular to which the hon. Gentleman drew attention which has already been sorted out, where supplementary benefit is now in payment whereas before it was not. There have been a number of such cases, and I am grateful to the hon. Gentleman for drawing attention to them. They are a matter for the discretion of the Supplementary Benefits Commission, and I must be careful not to trespass on that discretion. The Commission would certainly not wish to prevent anyone from studying or


improving himself while unemployed, so long as it was clear that he remained available for work and satisfied the conditions of Section 11 of the Ministry of Social Security Act, that he has registered for work.
I think that some of the problems have arisen over the type of courses and the conditions in which people register for them. The cases the hon. Gentleman has taken up, and our consultations with the colleges concerned, have considerably assisted to see that the all-important condition of availability for work can be satisfied, and that therefore the people concerned are eligible to receive supplementary benefit.
These are clearly difficult areas. I hope that I have said enough to convince the three hon. Members that we are extremely anxious, without opening the gates so wide that we reach a position where either supplementary benefit or unemployment benefit becomes available for conditions for which it was not intended, which no hon. Gentleman would want, to see that we do not allow a young man prepared to settle down on unemployment benefit to have the broad high road of that benefit whereas the chap who wants to better himself finds difficulties put in his way. That would be nonsensical, and we are anxious to try to avoid it, so far as we can within the terms of the regulations.
I hope that any hon. Member who feels that there is a case which has gone the wrong way will let me have the details. I should be very glad to investigate it with our local office or the Commission. If we found that it was not possible to make progress in that way we should be prepared to look at the law and the regulations to see whether any changes are required. My feeling is that it should be possible to bring people who can show that they are available for work within the terms of either unemployment benefit or supplementary benefit, as the case may be.

Mr. Leadbitter: We know what we are talking about here in the House. One of the great dilemmas is to know how best to deal with the skiver, the man who will neither work nor want, the chap we do not want to know anything about, the fellow who will rig the social security and unemployment benefit rules to his own advantage. If I were the hon. Gentleman I should be having to say the same things about qualifications, availability for work and so on. But what I want him to say is this—

Mr. Deputy Speaker (Miss Harvie Anderson): Order. I hope that the hon. Gentleman, who has already spoken, will intervene briefly.

Mr. Leadbitter: Will the hon. Gentleman accept that there is a genuine case for the part-time student to be tested on his own merits, and if unemployment benefit does not fall within the general category—

Mr. Deputy Speaker: Order.

Mr. Dean: I take the point. I think I can deal with it. I hope I have made it clear that if a worker who is following part-time education and is unemployed can fulfil the conditions of availability for work, the chances are that he will be eligible to benefit. I was saying that if cases come to the attention of hon. Members where they feel that that is not the position I shall be glad to look at them.
This has been a useful debate. I am grateful to hon. Members for raising the subject. It is a highly complex matter. I hope that as a result of airing the issue we have been able to bring some clarification which will be available for the future.

Question put and agreed to.

Adjourned accordingly at twenty-five minutes past Nine o'clock.